DEMICA has access to proprietary pools of capital, which we can deploy for our clients, or we can provide access to our bank and institutional investor partners on an agency, syndicated or risk participation basis. We are proud of these close partnerships and the excellent risk-adjusted returns our funding partners have achieved.
Our close relationships include a mix of largest global banks, strong regional institutions and niche-specialists. This unparalleled network enables us to assemble syndicates of funders for the largest programmes as well as successfully cover more specialist requirements.
Large banks have the lowest cost of capital and will continue to be the backbone of trade receivable finance. However, due to regulatory changes, we believe that non- bank funders such as insurance companies and pension funds will become progressively important. The onset of Basel III is expected to make it uneconomic for banks to fund those parts of a programme that are internally rated below BBB (colloquially called the Mezzanine) – these can be up to 15% of a facility size for non- investment grade clients, for those with lower quality receivables or for those seeking higher advance rates. Our banking partners are approaching us to bring non-bank funders into their programmes to address these changes. Mezzanine investors, now taking the first external loss, look to DEMICA’s unique platform and expertise to mitigate their risk.
In addition to mezzanine tranches in large transactions, non-bank funders working with us will also have the opportunity to fund receivables finance programs for corporates that are no longer well served by banks restricted to funding only core clients. Underserved clients include those that are non-investment grade, in less well banked jurisdictions or more challenging sectors or with higher gearing in their capital structures – all of which would like greater access to the cost effective working capital cost offered by DEMICA in its true sale, off-balance structures.