J.P. Morgan’s Credit Liquidity Solutions team (CLS) delivers working capital, credit risk management and monetization solutions for J.P. Morgan's clients globally. CLS products and capabilities include the Receivable Put, Lease Put, Alternative Letter of Credit (ALOC), and Claims Monetization (i.e., bankruptcy claims, Secondary Private Placements, Structured Investment Vehicles (SIVs), Auction Rate Securities (ARS), and other illiquid credit products).
Over the past several years, many companies have broadened their approach to risk management beyond more traditional areas of FX, Rates and Commodities. As companies adjust their internal best practices for risk management, J.P. Morgan’s CLS team continues to field new calls for unique solutions leveraging the credit markets and has become a leading player in this space.
The Trade Receivable Put Option (“Receivable Put”) provides companies the ability to purchase the right to deliver outstanding trade claims to J.P. Morgan in the event of a customer credit event (bankruptcy or liquidation). After a customer credit event occurs and the Receivable Put is triggered, the company delivers its outstanding accounts receivable (now unsecured claims) to J.P. Morgan. After confirming the validity of the claims, the company is paid the par value of the accounts receivable or a pre-determined purchase rate. This can be set at 100% of the coverage amount or at a lower level. The put can be customized to meet a company’s unique needs (e.g., tenor, exposure profile, counterparty).
Protection is available globally on a wide range of public and private companies, but particularly those which actively trade in the bond, loan and CDS market, as those obligors have publicly available information, as well as proxy debt instruments used for evaluation and pricing purposes.
A variation of J.P. Morgan’s Receivable Put is the U.S. patented Lease Put which offers a tailor-made risk management solution to manage equipment lease exposure. The Lease Put hedge notional adjusts precisely with the estimated amount of the amortizing exposure (e.g., total exposure, total unsecured exposure, or damages claim exposure). In the event that a debtor files for bankruptcy and rejects the associated leases, companies can put their outstanding lease claims to J.P. Morgan at a pre-determined payout rate. The Lease Put is a more efficient credit risk mitigant than a static Credit Default Swap hedge, which result in companies either over-hedging or under-hedging their exposure at any point in time.
CLS offers clients efficient solutions for monetizing and financing illiquid credit assets including: auction rate securities, bankruptcy claims, secondary private placements, and structured investment vehicles, among others.
J.P. Morgan’s Credit Trading desk provides liquidity for companies with claims against counterparties that have filed for bankruptcy. These claims take many forms including vendor trade claims, derivative counterparty claims, deficiency claims, and lease rejection claims, among others. As one of the largest participants in the bankruptcy claims market, J.P. Morgan is able to offer companies efficient solutions for monetizing what have historically been extremely illiquid assets. J.P. Morgan has extensive experience structuring these transactions in a manner that meets the needs of creditors with respect to both pricing and execution.
During the credit crisis, access to liquidity became more difficult for many companies holding asset-backed and variable rate paper, as well as other distressed or less liquid assets. In the case of banks, certain companies were forced to reclassify short term investments, typically the most liquid, as longer term less liquid assets whose fair value was difficult to determine without observable market prices. As one of the largest market-makers in this space, J.P. Morgan’s CLS team is able to offer companies efficient solutions for monetizing and funding these assets, which include: asset backed commercial paper (ABCP), auction rate securities (ARS), credit linked notes, secondary private placements, project finance debt, senior/subordinated debt, and structured investment vehicles (SIVs), among others.
J.P. Morgan’s Alternative Letter of Credit (ALOC) facility offers conventional irrevocable LCs to beneficiaries through an alternative source of unsecured liquidity. This is a public-side transaction which is executed on a best efforts basis. The product can be customized to meet companies’ needs in terms of tenor and face amount. This product leverages J.P. Morgan’s Credit Trading and Letter of Credit issuance leadership positions.
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. J.P. Morgan 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. J.P. Morgan 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.