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Buying a bank
After the securitization is placed, though, the next step is for the company’s shareholders to acquire a bank —a deal it said on Monday that it had signed.
A financial sponsor with an existing corporate relationship with Supply@Me will recapitalise the bank, whichwill be remodelled as a pure captive lender, with its assets consisting of Supply@Me’s inventory securitization.Existing liabilities and deposits will stay in place, funding the investments into captive.
The central bank of the jurisdiction where it is based suggested four possible institutions that were strugglingto survive as independent lenders, and which required external recapitalisation, making them suitablecandidates for conversion into a captive.
Given that Supply@Me’s largest business is in Italy, a country with plenty of undercapitalised banks, and CEOAlessandro Zamboni is an Italian national, the acquisition is likely to be there, though details are under wrapsuntil final regulatory approval has been granted.
The bank will be able to extend funding lines to cover the build-up of inventory portfolios, as well assubscribing for junior notes in securitizations. Supply@Me intends to move from a single tranche structure to amore usual securitization approach when the bank deal is closed, with the bank anchoring the junior notesand co-investing with third parties in the senior tranches.
It is also working with three credit rating agencies, discussing how best to obtain a proper rating for the deals.With these elements together — tranching and external ratings — the firm hopes to cut costs to its companiesdown to 4%, making use of the product attractive to firms that have access to lower cost capital.
4% is expensive funding for most investment grade companies, but the true sale approach brings in cash upfront, which can be treated as capital, according to Zamboni.
“Right now we have a portfolio of roughly €1.5bn, and we estimate that just in Italy we could move to €3bn,€1bn in the UK and €500m in the Middle East. We have fitted the business plan of the bank to the hugeuntapped market relating to inventory monetisation,” he said.
An announcement from Supply@Me on Monday said the deal would provide €8bn in funding over five years.
Working capital fintech Greensill, which mainly deals with supply chain financing and receivablessecuritization, also found it useful to have a bank in-house, buying and renaming Germany’s 93 year oldNordFinanz Bank in 2014. German insured deposits are therefore recycled into investments in receivables-backed financings originated by Greensill.
Part of SoftBank’s €800m investment in Greensill was recycled into recapitalising the bank in 2019, after itsbalance sheet grew more than 700% under Greensill’s ownership.
' The firm’s backers are already moving to the next expansion phase by lining up a captive bank to purchase'
Are these the same backers who had to sell shares to pay for the listing?
Hi everyone ;-)
as you hopefully now know, I dip in and out of this BB every now and then because I find the postings here, more than anywhere else, enlightening, amusing, enthralling even.
This one with 'Huge untapped debt' is just brilliant!!!
Look very closely at what is said, how it is said, and what implications can be drawn from the conclusions
I do just think that the material published on here will be a fantastic resource for anyone that is clever enough to write a screenplay/book/radio/theatre drama.
Keep it up guys 'n ' girls. Fantastic stuff!!
LSE-listed fintech Supply@MeCapital is preparing a €300m securitization in the new
asset class of inventory monetisation via StormHarbour. The firm’s backers are already
moving to the next expansion phase by lining up a captive bank to purchase, boosting
its funding capacity and opening the route to fully tranched securitization deals.
Inventory financing is a common technique for SMEs and larger firms alike, particularly those with limited
access to other forms of credit, since pledging inventories as collateral gives lenders excellent security.
But true sale, securitization-style financings that are off balance sheet are much rarer, with Supply@MeCapital
considering them to be a new asset class in the market.
Trafigura placed a landmark inventory securitization for its crude oil and metals inventories in 2017, but this
deal was itself a pioneering innovation, and had to surmount huge structuring and legal challenges before it
was closed.
Other securitizations were completed further in the past, such as in 1998 for wool trader Chargeurs and
Imperial Tobacco, but they have always been very rare.
More recently, large inventory financings have often been associated with struggling companies, and are
structured as secured loans, not off-balance sheet securitizations. Aston Martin, facing a cash crunch earlier
this year as Covid hit the already leveraged company, raised £100m in this way.
“We don’t see any other opportunities for a company to monetise its inventory on balance sheet, rather than
raise financing against it,” said Alessandro Zamboni, founder and chief executive. “We know there are a few
players that typically manage a single name transaction with a large corporate, a bespoke transaction with a
longer lead time.”
Supply@MeCapital, however, is targeting placement of a diversified pool. Its first deal, a €300m issue which
StormHarbour Securities is marketing at the moment, contains inventories from 16 sectors, including capital
goods, retail, pharmaceuticals and fashion.
Zamboni said that it was working with non-investment grade companies that were looking to improve their
financial position, in part due to the supply chain impact of Covid, but that these were not distressed
companies.
The true sale approach allows companies to receive off balance sheet treatment — they have sold their
inventories up front for real cash. However, they retain ‘skin in the game’, as only part of the inventory price is
paid up front by the securitization structure, and part as a deferred consideration when the inventory is sold to
an end customer.
This gives an effective advance rate of 85%, on top of which the company pays an 8% fee for arranging the
‘monetisation’. This pays the securitization coupon of 6% and gives Supply@Me a fee of the remainder.
The single tranche structure also allows the deal to fall outside the European Securitisation Regulation, whichapplies only to tranched structures.
StormHarbour has been working