Trade Receivables Securitisation: A Playbook for Success
27 October 2023

The market for Trade Receivables Securitisation (TRS) transactions has been rapidly expanding in recent years, with strong investor demand. However, TRS programmes also present a few challenges, such as the large volume and complexity of the underlying data, and the need for a wide range of third-party service providers.

Despite these challenges, TRS offer a resilient and adaptive financing solution that is well-suited to the changing financial landscape.

TMF Group and Demica, an award-winning supply chain finance platform, released its 2023 Trade Receivables Securitisation: A Resilient and Adaptive Financing Solution for professionals active in the industry.

TMF Group's Whitepaper Trade Receivables Securitisation

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Why companies are flocking to the TRS market

With a sustained period of rate hiking, and the broad consensus that there may be further increases ahead, traditional forms of financing remain less attractive for corporates looking for additional liquidity to their businesses. Many corporates are now looking to the trade receivables securitisation market as a source of competitive finance.

TRS provide tailored funding for corporate sellers, with the added option of deconsolidating their receivables from their balance sheet. Securitisations can be tailored to client requirements and are committed for longer terms. Further, they are more commercially competitive and less operationally involved than other receivables financing.

And according to fresh research covering the European market, TRS saw a healthy 9.1% year-on-year growth (based on committed amounts). The product now makes up approximately 60% of all private securitisations, making the overall estimated market for TRS roughly €115 billion in size. This far outweighs the size of securitisations of auto loans or leases, and consumer loans - the second, third and fourth most popular forms of private securitisation.

Many banks and other finance providers are gearing up to support the market. According to the Demica Benchmark Report 2023, which took the pulse of 190 trade financiers across the globe, 15% believe TRS will have the highest growth potential within their organisation, outpacing more typically user-friendly services such as factoring (11%), asset-based lending (9%), and dynamic discounting (6%).

An exciting new asset class for investors

How do TRS programmes work? They are structured similarly to other securitisations with a sale of the receivables - on a non-recourse basis - to an orphan special purpose vehicle (SPV) that is funded through the issuance of a note to senior funders. The risk adjusted returns are driven by a wide array of structuring features that help to mitigate defaults, as well as corporate seller and operational risks. Most transactions funded by banks and bank conduits can achieve implied ratings of A or AA under the Standard & Poor’s trade receivables criteria.

TRS programmes allow investors to invest in an asset class that is directly exposed to the real economy. They also directly contribute to the funding and growth of small- and medium-sized companies – frequently as suppliers of the corporate sellers.Set up as rolling programmes, where receivables are sold to the SPV using collections from prior sold receivables to fund these purchases, TRS have significant structural differences compared to other asset classes. These include the short nature of the assets, unique and diverse servicing risks, the corporate nature of the originators and debtors, the multi-jurisdictional and cross-currency portfolios, the rolling nature of programmes with variable funding structures, and the simplified tranching.

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Eager to explore this exciting new market? Download our latest report today.