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The Receivable Put product is a more effective hedge than other potential alternatives. The following highlights the benefits over the more traditional set of credit risk management tools:
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Factoring
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Trade
Insurance |
Credit Default Swaps |
Receivable Put
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Tenor Flexibility |
Typically minimum 6 months
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Typically minimum of 1 year
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Typically minimum of 1, 3, or 5 years, depending on market liquidity in name
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Can be structured on a month to month basis
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Obligor Coverage |
Often unavailable for high yield and distressed names
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Often unavailable for high yield or distressed names, often cancelable
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Limited to liquid names
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Can offer protection on liquid names with public debt
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Pricing |
Often prohibitive for high yield or distressed names
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Relatively inexpensive for available names
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Higher than insurance
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Typically higher than CDS
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Ease of Execution |
Typically requires 3 months due diligence
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Can require substantial underwriting review process
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Easy execution for liquid names
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Easy execution for liquid names
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Coverage Level |
Can be 100% or some hair-cut (20%)
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Requires a deductible or co-insurance (10 -20%)
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Does not cover A/R, limited to bank debt and bonds
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Up to 100% payment at settlement
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Other Considerations |
Negative connotation with customers
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Claims process is cumbersome, including a 180-day waiting period
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For certain credits, can be difficult to source bonds for settlement
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May be tailored to cover fluctuating balances
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For additional information, please contact:
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Credit Trading |
Corporate Structuring and Solutions Janet Wiener |
The information discussed herein is intended for sophisticated institutional clients. Vendor protection transactions and other credit risk tools mentioned above may not be suitable for all such persons. This information is not intended to provide accounting, legal, regulatory, credit, or tax advice, and prospective investors should contact their own accounting, legal, regulatory, credit, and tax advisors for additional information. JPMorgan assumes no responsibility or liability whatsoever to any person in respect of such matters. This material posted on this site is provided for information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any specific vendor protection product or other financial instrument. Information on this website is subject to change. JPMorgan endeavors to maintain the information as current and accurate but undertakes no duty to update information or to supply corrections. Clients should contact the individuals listed above for more information. This site has been published in the United States for residents of the United States only. This site is not intended for use by, or to provide any information to, investors outside of the United States, and such investors should not rely on any information or material appearing on the site.