Demica closing in on new origination team

16 Jun 2015

Media Coverage

Former Lloyds and Royal Bank of Scotland conduit securitization pro Tim Davies started at Demica three weeks ago in the newly created role of head of origination for Europe.

Davies aims to build a team of director and managing director-level securitization professionals in Europe, to provide origination and structuring services for trade receivables securitizations for mid-cap companies.

The firm is close to making hires to cover France, Germany, Spain, and Italy. The new staff will be based in London but will travel regularly, Davies told GlobalCapital.

He hopes to have a full team of six or seven bankers in London by the end of the year. Demica was planning to expand into the US after hiring in Europe, but that may happen sooner than expected, Davies said.

“We’ve found two candidates that are good enough, so we may be hiring someone to run the US,” he said.

Demica has a satellite office in San Francisco, but the new US hires would be based in New York, he added.

Davies will first focus on providing financing to small and medium sized businesses with an eye to securitizing the loans and selling them on the private market. Demica has a potential pipeline of trade receivables deals up first but may also expand into supply chain finance and consumer loan portfolios.

Market vacuum

Banks, which historically provided securitization services to small and medium businesses, primarily in the form of asset-backed commercial paper conduits, have been largely absent from the trade receivables securitization market since the crisis, focusing primarily on larger corporate clients. Capital charges imposed on securitizations since the crisis have made deals for SME credits too costly.

“The deal sizes are chunky and the margins are thin,” Davies said.   

Once Basel III rules are fully implemented, banks are likely to retreat even further from securitizing SME’s trade receivables. Trade receivables programmes have assets with quick churn, as little as 60 days, but under new rules such entities would be counted as one year programmes, adding to the capital cost for banks, Davies said.

Demica, which was bought by private equity firms JRJ Group, TomsCapital and 76 West Holdings last year, will provide financing to SMEs via third party investors and shareholders. The firm then plans to structure, underwrite and place securitizations of the receivables with investors.

A bonus, Davies adds, is that as an operator of a mainframe reporting system, Demica will also be able to provide investors with granular pool data.

Source: GlobalCapital