Tim Reason, CFO.com | US
June 30, 2006

If the Brush Fits

Kevin, you're quite right that this story refers primarily to trade receivables ? a portion of the overall securitization market that is a very significant source of corporate financing, but is dwarfed by residential mortgage, auto finance and credit card receivable securitizations. Obviously, CFO.com is most concerned with corporate finance.

However, the other types of securitizations you refer to still use 364-day structures, even though it's understood that they'll use their multi-year renewals.

I agree that these are not the sort of securitizations to which the Georgia Tech report is referring. But the distinction is more one of choice ? their structure is essentially the same. In fact, plenty of companies have quasi-financing arms that use securitization in the way you describe (like a retailer's store credit card) and certainly have the ability to unwind those arrangements. And I'd bet that in the wake of Fin 46 you can find that some have been treated as operating cash flow and others as financing.

Posted by Tim Reason | Jul 6, 2006 8:57 PM ET

Some very good observations

I work with receivable finance and related transactions. Although I have seen these financial tools save businesses and allow other companies to grow when nothing else would work, it can still be a dangerous game.
Addiction may be an accurate term but if it allows you to make money otherwise inaccessible...that?s just good business. You have to ask yourself what is my strategy? What are my long team goals? Is this a tool or a crutch? Is this going to allow my business to strengthen & grow or is it going to trap me.
Again, great article.

Posted by Joel Clark | Jul 6, 2006 6:07 PM ET

Too broad a brush

The term "securitizations", as it is used in this article, seems to refer to only one type of asset-backed transaction, that is, the sale of trade receivables to an asset backed commercial paper conduit. When the article says "Even though banking regulations typically require securitizations to be renewed every 364 days", it is clearly not referring to the long term securitizations that are used in the auto finance, credit card, and residential mortgage markets. These securitizations are not the type that can be ramped up and down at the discretion of the originator, unlike the conduit financing mechanism. Once they're issued, they're out there until the underlying assets are repaid, or the clean-up call is hit. So, how about a little more accuracy in how you discuss this topic? After all, it's what we should be able to expect from financial experts.

Posted by Kevin O'Hagen | Jul 6, 2006 11:46 AM ET

Not Gaap - just makes sense

I know it is not GAAP.

Question is why not if it make sense?

That is problem with a GAAP that must be blessed by ivory tower in NYC instead of being figured out in field based on basic principles and professional experience.

Posted by John Laurie | Jul 6, 2006 7:54 AM ET

What About GAAP?

I've talked to a few CFOs who say GAAP doesn't let them put securitization through financing cash flow. No conspiracy there, but certainly a practical problem for them.

Posted by Tim Reason | Jul 5, 2006 11:43 AM ET

Simple Solution to Conspiracy Theory

Treat the securitization for what it is economically, a financial transaction. Put it through financing and not through operating cash flow.

By the way most companies use securitization because it is the cheapest form of debt financing available - not because of some Machiavelian plot. Also if you have extra cash you should pay down the securitization just like you would a commercial paper program. Finally, if the financial management in the company has any brains they will recognize while securitization is a cheap form of financing it is no more long term than a commercial paper program.

The truth is out there.

Posted by John Laurie | Jul 5, 2006 11:16 AM ET

Securitization: Cash Flow on Tap

I agree with the remark of the debtors that are not the surety. That is the outstanding debts that may come or are hanging in the Balance Sheet will skew the Balance Sheet on the wrong direction.
There is another problem. We have ACID TEST, the working Capital. This sounds like the company is doing very well but the note s, if not read with the balance, which mostly is the case as the Balance Sheet is becoming Smaller and Smaller by the mergers and acquisition, the notes hide a lot of the intangibilities.
Bravo here is one article that fits the corporation cash flows. I always wanted some one to shout at the CASH FLOW. This is not the real criteria of assuming the company?s liquidity. For the inner circles, YES. However, for the stakeholder it is risky also.
Thank you very much for the loud shout ?FOUL?.

Posted by Firozali A Mulla | Jul 1, 2006 4:09 AM ET