4 Situations Where Invoice Auctions can Supplement Securitization and ABL Programs

Recently I had a chance to catch up with Co-Founder and Managing Director Glenn Kocher from LiquidX. For many of you who are not aware of LiquidX, they completed a buyout recap of TheReceivablesExchange platform back in Jan 2016 and brought Broadridge Financial Solutions in as strategic investor.

I have known TheReceivablesExchange since its inception in 2007 and admired the founders creativeness in trying to make a market for receivables for small business. The SME model ultimately proved too challenging - turnaround time was slow due to the manual diligence process on the backend, too much fraud, and just creating a buy-sell market were overwhelming. I have written posts about the business model – see Are Invoice Auction Marketplaces on Life Support? and also the posts below.

LiquidX’s business model is to provide a marketplace for the Fortune 1000. The platform enables trading receivables, payables and letters of credit. Marketplace participants include large corporate sellers as well as buyers of their paper including banks, asset managers, and hedge funds to trade risk and invest in these assets.

So when I look at the Fortune 1000 and options with their receivables, they can run securitization and asset based lending programs, and there are sale of receivable platforms being built to connect these companies with their banking group. So the question becomes why would want they want to auction their receivables?

Where the Auction Market may Supplement current Liquidity

There can be several situations where a marketplace may make sense.

    • In specific sectors like Healthcare, many times you have events where revolvers must be drawn. Paying down that debt by monetizing receivables can make a lot of sense. Or if you look at the Pharmaceutical industry, there are very large concentrations with distributors, and marketplaces can help with risk mitigation by taking some of the receivables off balance sheet.
    • Many Fortune 1000 companies realize there is a big administrative burden running securitization programs and doing the reporting. A marketplace gives them a “light touch” solution which is easier to set up and addresses a wide buyer base.
    • In the High yield space, to the extent they have a carve out in their credit facility or are able to get a lien release for certain amounts or names, a marketplace approach may give better pricing and advance rates than ABL lenders plus they will not get haircuts on their investment grade receivables.
    • A company with term debt can pay it down by monetizing investment grade receivables.

For more information on LiquidX, visit http://lqxinc.com/

 

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