CREDIT LIQUIDITY SOLUTIONS

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.