We spoke to Kristof Moens, Global Securitisation at Fortis Bank, about the advantages of securitisation for companies in obtaining funding.

There are not many ways for a company to obtain fresh resources. In simple terms, the company may itself issue bonds or commercial paper, in addition to applying to a bank for a credit facility. However, this market is limited: if a company wishes to make a direct money market or capital market call, it must be sufficiently well known to attract potential buyers and it should preferably have an external rating, which is only true of very few European companies.
The margin payable on a credit facility, debenture loan or commercial paper issue depends largely on the company's repayment capacity. For instance, a debenture loan for a company with a BBB rating (or an equivalent credit quality) will be more expensive than for a company with an AAA rating.

For some years now, there has been an alternative funding technique that is being increasingly used: securitisation.
Securitisation is a technique that makes it possible to convert illiquid assets, such as trade receivables and stocks, to negotiable paper. A company may, for instance, sell its invoices to a company specially set up for this purpose and known as a "special purpose vehicle" (SPV). In order to fund the purchase, the SPV calls on institutional investors by means of the issue of either (long-term) bonds or (short-term) commercial paper. Each time invoices are paid, throughout the duration of the programme, the SPV purchases more invoices with the moneys received.

Conditions to be met before a company can take part in a securitisation programme
Firstly, a company must have a sufficiently large portfolio. If the portfolio of outstanding receivables is less than about 100 million euros, the launch costs are often too high.
To limit the risk, and so too the risk premium, an adequate portfolio diversification is essential. This is achieved by restricting each debtor's relative weighting in the portfolio.
What is more, the portfolio must have a sound, demonstrable track record. Providing data of this kind is often a sticking point for companies.
A sufficiently developed IT system is also an absolute must. If, for instance, a company wishes to securitise its invoices, it must be able not only to provide past qualitative data on its bill portfolio, but must also be able to report periodically (eg monthly) on developments in the portfolio in respect of factors such as amounts still outstanding, invoices already paid and invoices in arrears. The importance of these reports should not be underestimated.
A company sells its portfolio to the SPV without notifying its customers. This means that the company itself remains responsible for the so-called servicing: collecting and monitoring claims and enforcement, if necessary. At regular intervals - monthly, for instance - it will forward moneys received to the SPV.

Scaldis: securitisation vehicle with the highest rating
In November 1999, Fortis Bank set up the Scaldis platform, the major advantage being that it is not necessary to set up a separate SPV for each company that wishes to proceed with securitisation.
Scaldis makes it possible for companies to fund their portfolio quickly and efficiently. Drawing up the legal documents usually takes between one month and three months, depending partly on how quickly the company can provide the required data. Once the programme has been set up, and provided no "roadshows" have to be arranged, no prospectus has to be issued and stock-exchange listing is not required, the funding can be arranged in two days.
In addition, the funding is completely anonymous - only the bank, solicitors and ratings agencies are aware of it.

The commercial paper issued by Scaldis, mainly with maturities of between one and three months, has the highest short-term ratings from the three largest ratings agencies (equivalent to an AAA rating). This means that companies without a rating or with a lower rating can still access the money market at the best possible terms.

Conclusion
Securitisation is an attractive alternative form of funding for companies. Firstly, it offers them the possibility of diversifying their funding. In addition, it is a quick, flexible way for them to obtain access to the money market at the best possible terms. As a result, securitisation is often cheaper than other forms of funding.