Credit Liquidity Solutions
The 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 trade claims) to J.P. Morgan. After confirming the validity of the trade 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 entity).
- Client delivers product or provides service to their Customer and carries accounts receivable
- Client purchases right to deliver outstanding receivables to J.P. Morgan upon a customer credit event
- In a credit event scenario, the Receivable Put will pay out a pre-agreed level of protection (can be set at 100% of face amount)
- When a Receivable Put is triggered, Client delivers its accounts receivable (now an unsecured claim) to J.P. Morgan
- J.P. Morgan confirms the validity of the claim
- J.P. Morgan pays Client the par value of the claim or a pre-determined purchase rate
The Receivable Put was developed to offer a more direct hedge for trade receivables than the existing, more traditional set of credit risk management tools (i.e., Credit Default Swaps, Trade Insurance and Factoring). The following table highlights the benefits of the Receivable Put over existing credit risk management tools.
|Factoring||Trade Insurance||Credit Default Swaps||Receivable Put|
|Tenor Flexibility||Typically minimum 6 months||Typically minimum of 1 year||Typically minimum of 1, 3, or 5 years, depending on market liquidity in name||Can be structured for short term coverage or as long as 3 years|
|Obligor Coverage||Often unavailable for high yield and distressed names||Often unavailable for high yield or distressed names, often cancelable||Limited to liquid names||Can offer protection on liquid names with public debt or equity|
|Pricing||Often prohibitive for high yield or distressed names||Relatively inexpensive for available names||Higher than insurance for High Yield names||Typically higher than CDS|
|Ease of Execution||Typically requires 3 months due diligence||Can require substantial underwriting review process||Easy execution for liquid names||Easy execution for liquid names|
|Coverage Level||Can be 100% or some hair-cut (20%)||Requires a deductible or co-insurance (10–20%)||Does not cover A/R, limited to bank debt and bonds||Up to 100% payment at settlement|
|Other Considerations||Negative connotation with customers||Claims process is cumbersome, including a 180-day waiting period||Coverage may not be available on specific customer counterparties. CDS requires MTM accounting||May be tailored to cover fluctuating balances|
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.
For receivable put inquiries, please contact:
- United States
- Juan Reig Mascarell: +44 207 779 3085
- Emerging Markets
- Bobby Uberoi: +44 207 777 1219
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.