Bulk Financing of Lease Receivables is a sale of receivables between two parties. One of the parties (the “Seller”) is the company selling the receivables and the other is an entity that buys the receivables (e.g. Trust).

The Trust issues debt obligations in order to raise funds that are then used to purchase the receivables from the Seller. After the initial sale, the Trust uses the collections received on the receivables (which it now owns) to pay the interest and principal on the debt obligations that it has issued. Once the obligations of the Trust have been satisfied, all remaining collections on the receivables are then returned to the Seller.

Utilizing certain credit enhancements structured into the receivable transaction, the Trust is privately rated and enjoys the lowest possible cost of funds. If the Seller uses the proceeds on the sale of receivables to retire its debt, the interest costs on that debt are then essentially replaced by the interest costs of the Trust because all cash flows over and above those required to satisfy the Trust obligations are returned to the Seller.

In many cases, the Seller continues to service the sold portfolio so the transaction is seamless to the lessee, the Seller’s client. This increases customer satisfaction and retention.

Benefits of Bulk Financing of Lease Receivables

New Source of Funds
For companies seeking an alternative to a traditional funding source, a sale of receivables can achieve this.

Cash Flow
By utilizing the Net Present Value cash flow model as the base amount for the receivable advance, the result is a strong cash flow that normally exceeds the Net Book Value of the portfolio. Also, the transaction eliminates any negative cash flow through the term of the lease.

Simple Structure
Through utilizing the private capital markets, this structure has been simplified making it easier to understand and more importantly, simple to administer. Typically, the upfront costs associated with this type of program are less than establishing a traditional bank facility. Securcor Inc.’s experience with these transactions provides Sellers with an alternative that is proven.

Low Cost Financing
This structure allows the low cost of funds achieved by the Trust through its credit rating to be passed on to the Seller. To gain a strong rating, the credit quality of the receivables purchased by the Trust is enhanced through the structure of the receivable transaction.

Off Balance Sheet Financing
This involves removing the receivables from the balance sheet and using the proceeds from this sale to pay down any debt on the balance sheet. There are financial statement covenants that may be positively impacted from this form of financing.