Paper and Packaging Manufacturer Saves €4m

Project Overview - Trade Receivables Securitization and Asset Based Lending -

Demica was appointed to work with one of Europe’s largest European-based manufacturers in the paper and packaging industry thanks to its global reputation for receivables financing and asset based lending in the form of trade receivables securitization.

Our client was acquired by a leading US private equity firm in the largest buy-out to date in Irish corporate history and one of Europe’s most complex. The buy-out fundamentally changed the financial structure of the business. The incumbent management team together with the new private equity owners immediately focused their efforts on minimising interest costs and paying down senior debt to reduce debt amortisation pressure.
Demica worked with the client to pave the way for the €260 million trade receivables securitization, in the form of a 7-year Medium Term Note (MTN) receivables financing transaction. The client is saving €4 million in annual interest costs through the sale of receivables. In addition, receivables financing allowd the client to repay a major tranche of senior debt, transforming the risk profile of the group’s post-LBO balance sheet.

Demica consultants worked with the clients management team and their lawyers, to analyse the €800 million global receivables book in order to assess the financial, operational, legal and tax issues that would define the structure of the transaction. Based on the stringent invoice eligibility criteria for an AAA rated transaction and the legal considerations in certain jurisdictions, the sale of receivables transaction ultimately included invoices that represented 32.5 % of the global trade receivables book.

Meeting the Transaction Requirements

Specialist technical skills were required to centralise invoice tracking across multiple jurisdictions. Following a review of software systems available in the market, Demica’s proprietary technology Citadel®, was selected as the optimal solution to simultaneously run both the securitization transaction and the existing invoice discounting programme. Continued management of the client's internal invoice discounting programme systems, was a key client requirement. Also of critical importance, was the integration of disparate IT systems across multiple operating companies. Citadel's asset based lending and trade receivables securitization solution fulfilled all of our client’s requirements.

Transaction Execution

Demica worked with the client, their investment bank, and their lawyers to finalise the financial structure of the sale of receivables deal. The issue was heavily oversubscribed and priced at 45 basis points times over libor. Although the primary motivation of the client’s was to facilitate the trade receivables securitization transaction, they now have the flexibility to include additional companies into their invoice discounting programme and also achieve tighter control over their internal credit management function thanks to receivables financing.

Comprehensive Performance History for B2B Group

Project Overview

Demica recently led a project for a global value added business-to-business (B2B) distribution services group that operates across the electrical materials, safety and other MRO (Maintenance Repair and Operations) business sectors in Europe, North America and Asia-Pacific. In these diverse and complex markets, our client co-ordinates product and information flows, adding value and providing significant cost savings to end-users and suppliers.
To meet our client’s requirements, Demica provided Citadel ASP, (a secure communications production environment) to support the delivery of real-time reporting of the data, required for the execution of a trade receivables securitization. Rigorous testing of the environment occurred prior to the live transaction date to ensure the reported data was accurate, complete, and provided within specified time frames.

Meeting the Transaction Requirements

For the initial phase (phase 1) of the project, Demica successfully delivered to the client a detailed, open-item level analysis of all invoice data from each seller entity, for an agreed period. This phase included reporting on metrics of specific criteria including roll-forward items, ageing, concentration, dilutions, credit terms, write-offs, and recovery items. Phase 2 involved the on-going collection of weekly data from the 11 participating operating companies in the securitization programme. This phase provided key additional data, which when combined with data from Phase 1, enabled the client to present a sufficiently comprehensive performance history of its trade receivables to its nominated arranger bank, paving the path for the trade receivables securitization transaction to proceed. Throughout this, testing occurred across all aspects of the data collection and reporting process, via the Citadel ASP sale of receivables solution. This was crucial to ensuring that the entire process was in accordance with agreed transaction parameters.

Transaction Execution

As our client had in existence a well established internal factoring programme (a form of asset based lending) between a group of sellers and one of their international divisions, it was imperative that the Citadel ASP configuration would be set up to facilitate the requirements of the internal factoring programme. Demica provided the client with a fully parameterised and configured Citadel ASP solution, enabling the clients to access all required reporting metrics, avoiding the burden of on-site software installation, integration issues and maintenance workload and costs. Once the reporting is "live", Demica’s ongoing obligation to the client is the continued provision of the mandatory reports required to fulfill the contractual duty of a securitization transaction. The Service Level Agreement (SLA) between Demica and the client, clearly defines the precise contractual obligations of Demica in this regard, ensuring optimal client satisfaction and a successful transaction outcome.

Demica's Citadel Trade ReceivablesSecuritisation has a global reputation in the receivables financing and asset based lending spheres in the form of trade receivables securitisation and trade receivables securitisation resources. The sale of receivables is indeed made possible thanks to Citadel, the leading trade receivables securitisation solution. For more information see the trade receivables securitisation overview page.