Benefits of a comprehensive credit insurance program
Case Study: Founded in 1983, a Pennsylvania-based manufacturer of industrial pumps has seen increased demand for their products over the last five years – one driven by more project-based sales that linked their products to a complex manufacturing process.
While sales are increasing, the contracts typically included progress payments, resulting in larger credit exposures with existing customers.
The Issue: While the company felt they did an effective job internally managing credit, relying primarily on credit reports and payment history, they realized there was significant financial risk. Non-payment from any of these buyers would severely impact the equity it had taken years to build up, or worse, possibly require the company to restructure.
The Resolution: Securitas worked with the company to develop a complete turnover credit insurance program to cover 90% of credit exposure. Through a comprehensive underwriting process with various insurance companies, the company gained greater financial insight into its customer base and enabled them to identify higher risk buyers. In addition to providing peace of mind, the CFO commented the policy has helped them implement new credit procedures that work within policy requirements and ultimately benefit the company.
Value of Securing Foreign A/R
Background: Founded in 1969, a New Jersey-based manufacturer and supplier of high quality products to the corrugated box industry has seen significant changes over the years.
This includes an increase in export business, which currently represents 25% of the company’s sales and growing. The shift was not without challenges.
The Issue: The company’s growth constrained working capital because their lender excluded all uninsured foreign receivables from their borrowing base.
The Resolution: Securitas worked the company to develop an Export-Import Bank multi-buyer program to insure foreign receivables. Once implemented, the lender agreed to an 80% advance rate on these receivables, providing $450,000 in additional working capital. The annual insurance premium of approximately $12,000 is paid monthly on a pay-as-you go basis to match sales. The CFO sees this as a clear win-win, adding that the company should have implemented a credit insurance program much sooner. Not only has it helped provide working capital to further export sales growth, it also protects against buyer non-payment.
MBA students from the McDonough School of Business, Georgetown University, complete their third South African project with Securitas Global Risk Solutions.
A project team consisting of five MBA students from the McDonough School of Business completed a project in correlation with Securitas, which examined the feasibility of developing an aquaculture feed production plant in South Africa.
The project team had a period of twelve weeks, culminating with a week in Johannesburg, South Africa, to deliver its presentation.
The objective was to determine whether investment in a fish feed plant could deliver a nominal rate of return of 18% or higher and, if so, which partners Securitas should work with to pursue the venture. Oceanwise Ltd. (Oceanwise), a South African aquaculture producer of Dusky Kob fish, was identified as one potential partner, and an American animal feed manufacturer, was another.
Two different investment options were identified: A smaller bolt-on retrofit production line and a new greenfield plant, were analyzed to gauge their potential profitability.
To evaluate this business opportunity, market forecasts for the aquaculture industries in numerous Sub-Saharan African countries were developed to gauge the size of the region’s potential customer demand. Nigeria and Ghana were revealed to be much larger markets than South Africa, though the prospect of serving these markets via export poses considerable challenges.
$25 million, 270 day terms, credit default protection on a B+ rated buyer in Spain
Spanish solar project company with B+ rating and leverage of 10:1 requires vendors to accept payment terms of 270 days. Securitas secures coverage of $13 million in North America and $12 million through a Llyod’s syndicate arrangement.
With credit protection, supplier accepts 270 day terms, wins business and also facilitates the financing of the receivables within bank borrowing base.
Bridge loan to a South African commercial developer
In the turbulent banking market of 2011, our client was unable to access his line of credit due to his lender’s default.
Securitas Global structured a nine month working capital credit facility to ensure its client’s ability to review different joint venture options.
Three-year $25 million default protection on a B- rated buyer
Fortune 100 company purchases payment protection against sub investment grade buyer.
Allows client to waive prepayment requirement by transferring credit risk to a AA rated guarantor. Protection is non cancellable, and payable with 14 days of default.
Energy marketer increases select sales by 65% within one year
An energy marketing company was forced to limit certain sales based on individual credit lines assigned to the buyers.
Securitas structured a unique risk credit transfer solution that allowed the marketer to increase those credit limits. As a result, the company increased sales by $32 million for a premium of $60,000.
U.S. based resort owner obtains $280 million refinancing for three properties in Latin America
Securitas structured an interest only debt instrument in the capital markets and used an insurance solution which ultimately allowed the loan to be securitized.
The benefit to the hotel owner was excess cash of $80 million with no change in debt service.
U.S. exporter monetizes foreign receivables
A U.S. exporter was denied the ability to finance foreign receivables by their lending institution.
Securitas developed a solution that mitigated the underlying credit and political risk inherent with trade receivables from overseas buyers and the lender agreed to finance the assets.
Food distributor overcomes concentration constraint in borrowing base
A receivable concentration clause created a borrowing constraint for a distributor due to significant credit exposure to a privately held grocery retailer.
The bank widened their borrowing base parameters after Securitas helped structure a solution which combined self insurance and credit risk transfer on the private buyer. The impact was an additional seven figure availability for the distributor.
U.S. exporter obtains coverage on sovereign Venezuelan buyer in August 2007
A U.S. company won a material order from Petroleos de Venezuela, S.A.
(a Venezuelan state-owned enterprise) for the construction of a dry dock. Securitas successful placed non-honoring of payment obligation coverage with a Standard and Poor A+ counterparty.
U.S. manufacturer transfers credit risk on tier 1 automotive supplier prior to insolvency
A U.S. manufacturer became concerned with their credit risk to Tier 1 automotive supplier.
Securitas facilitated the placement of a distressed debt put option on the company the week they filed for bankruptcy. As a result, the manufacturer protected their cash flow by mitigating the impact of insolvency.
One year $100 million payment guaranty for crude oil shipments
Major US oil producer gets payment protection on Asian credit for monthly loadings of 1 million barrels.
Allows producer to extend credit and payment terms.
Utility replacement power cost guaranteed during outages
A U.S. based utility lost $150 million over 12 months due to replacement power purchases during unplanned outages of certain generating units.
Securitas helped by arranging for utility replacement power cost guarantees during outages.
Five-year, $60 million guaranty on Ecuadorian credit
A lessor of power barges entered a five-year agreement to provide electricity to Guayaquil, Ecuador.
The lessor’s bank denied the financing due to political risk exposure but Securitas was able to secure a five-year $60 million guaranty on Ecuadorian credit.
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