Development Financing during a Crisis : Securitization of Future Receivables
Mexico's Telmex undertook the first future-flow securitization transaction in 1987. From then through 1999, the principal credit rating agencies rated more than 200 transactions totaling $47.3 billion. Studying several sources, the authors dra...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/04/5392498/development-financing-during-crisis-securitization-future-receivables http://hdl.handle.net/10986/19672 |
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okr-10986-19672 |
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oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
| building |
World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ASSET BACKED SECURITIES ASSET SECURITIZATION ASSETS BALANCE SHEET BANK DEPOSITS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY PROCEDURES BOND BONDS BORROWING BORROWING COSTS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKETS COLLATERAL COLLATERALIZATION COMMERCIAL BANKS COMMERCIAL LOANS COMMODITIES COMPOUNDING COST SAVINGS CREDIT RATING AGENCIES CREDIT RISK CURRENCY DEVALUATION DEBT DEBT RESTRUCTURING DEBT SERVICING DEVELOPMENT FINANCE DEVELOPMENT FINANCING DISCLOSURE DOMESTIC CAPITAL MARKETS ELASTICITY OF DEMAND EMERGING MARKETS EQUITY CAPITAL EXPLOITATION EXTERNALITIES FINANCIAL CRISES FINANCIAL INFORMATION FINANCIAL SUPPORT FIXED COSTS FLOATING RATE NOTES FOREIGN CURRENCY FUELS GLOBAL CAPITAL GLOBAL MARKETS HARD CURRENCY INCOME INSURANCE INSURANCE COMPANIES INTEREST COSTS INTEREST PAYMENTS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT BANKERS INVESTMENT BANKING INVESTMENT BANKS INVESTMENT CLIMATE INVESTMENT PROJECTS INVESTOR CONFIDENCE ISSUERS LATIN AMERICAN LAWS LEGAL PROVISIONS LIQUIDATION LIQUIDITY LITIGATION LOCAL CAPITAL MARKETS LOCAL CURRENCY LONDON CLUB MATURITY METALS OFFERINGS OIL POLICY MAKERS PRIVATE DEBT PRIVATE PLACEMENT PROPERTY RIGHTS PUBLIC POLICY RETURN ON EQUITY RISK MANAGEMENT ROYALTIES SANCTIONS SECURED DEBT SECURITIES SETTLEMENT SOVEREIGN RISK TAX REVENUE TAX REVENUES TAX SHARING TRADE FINANCE TRADE FLOWS TRANSACTION COSTS WILLINGNESS TO ACCEPT |
| spellingShingle |
ACCOUNTING ASSET BACKED SECURITIES ASSET SECURITIZATION ASSETS BALANCE SHEET BANK DEPOSITS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY PROCEDURES BOND BONDS BORROWING BORROWING COSTS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKETS COLLATERAL COLLATERALIZATION COMMERCIAL BANKS COMMERCIAL LOANS COMMODITIES COMPOUNDING COST SAVINGS CREDIT RATING AGENCIES CREDIT RISK CURRENCY DEVALUATION DEBT DEBT RESTRUCTURING DEBT SERVICING DEVELOPMENT FINANCE DEVELOPMENT FINANCING DISCLOSURE DOMESTIC CAPITAL MARKETS ELASTICITY OF DEMAND EMERGING MARKETS EQUITY CAPITAL EXPLOITATION EXTERNALITIES FINANCIAL CRISES FINANCIAL INFORMATION FINANCIAL SUPPORT FIXED COSTS FLOATING RATE NOTES FOREIGN CURRENCY FUELS GLOBAL CAPITAL GLOBAL MARKETS HARD CURRENCY INCOME INSURANCE INSURANCE COMPANIES INTEREST COSTS INTEREST PAYMENTS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT BANKERS INVESTMENT BANKING INVESTMENT BANKS INVESTMENT CLIMATE INVESTMENT PROJECTS INVESTOR CONFIDENCE ISSUERS LATIN AMERICAN LAWS LEGAL PROVISIONS LIQUIDATION LIQUIDITY LITIGATION LOCAL CAPITAL MARKETS LOCAL CURRENCY LONDON CLUB MATURITY METALS OFFERINGS OIL POLICY MAKERS PRIVATE DEBT PRIVATE PLACEMENT PROPERTY RIGHTS PUBLIC POLICY RETURN ON EQUITY RISK MANAGEMENT ROYALTIES SANCTIONS SECURED DEBT SECURITIES SETTLEMENT SOVEREIGN RISK TAX REVENUE TAX REVENUES TAX SHARING TRADE FINANCE TRADE FLOWS TRANSACTION COSTS WILLINGNESS TO ACCEPT Ketkar, Suhas Ratha, Dilip Development Financing during a Crisis : Securitization of Future Receivables |
| relation |
Policy Research Working Paper;No. 2582 |
| description |
Mexico's Telmex undertook the first
future-flow securitization transaction in 1987. From then
through 1999, the principal credit rating agencies rated
more than 200 transactions totaling $47.3 billion. Studying
several sources, the authors draw conclusions about the
rationale for using this asset class, the size of its
unrealized potential, and the main constraints on its
growth. Typically the borrowing entity (the originator)
sells its future product (receivable) directly or indirectly
to an offshore special purpose vehicle (SPV), which issues
the debt instrument. Designated international customers make
their payments for the exports directly to an offshore
collection account managed by a trustee. The collection
agent makes principal and interest payments to investors and
pays the rest to the originator. This transaction structure
allows many investment-grade borrowers in developing
countries to pierce the sovereign credit ceiling and get
longer-term financing at significantly lower interest costs.
The investment-grade rating attracts a wider group of
investors. And establishing a credit history for the
borrower makes it easier for it to access capital markets
later, at lower costs. This asset class is attractive for
investors-especially buy-and-hold investors, such as
insurance companies-because of its good credit rating and
stellar performance in good and bad times. Defaults in this
asset class are rare, despite frequent liquidity crises in
developing countries. Latin American issuers (Argentina,
Brazil, Mexico, and Venezuela) dominate this market. Nearly
half the dollar amounts raised are backed by receivables on
oil and gas. Recent transactions have involved receivables
on credit cards, telephones, workers' remittances,
taxes, and exports. The potential for securing future
receivables is several times the current level ($10 billion
annually). The greatest potential lies outside Latin
America, in Eastern Europe and Central Asia (fuel and
mineral exports), the Middle East (oil), and South Asia
(remittances, credit card vouchers, and telephone
receivables). One constraint on growth is the paucity of
good collateral in developing countries. Crude oil may be
better collateral than refined petroleum. Agricultural
commodities are harder to securitize. Another constraint:
the dearth of high-quality issuers in developing countries.
Securitization deals are complex, with high preparation
costs and long lead times. The ideal candidates are
investment-grade entities (in terms of local currency) in
sub-investment-grade countries (in terms of foreign
currency). Establishing indigenous rating agencies can
slash out-of-pocket costs. Developing standardized templates
for certain types of securitizations might help. A master
trust arrangement can reduce constraints on size.
Multilateral institutions might consider providing seed
money and technical assistance for contingent private credit facilities. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ketkar, Suhas Ratha, Dilip |
| author_facet |
Ketkar, Suhas Ratha, Dilip |
| author_sort |
Ketkar, Suhas |
| title |
Development Financing during a Crisis : Securitization of Future Receivables |
| title_short |
Development Financing during a Crisis : Securitization of Future Receivables |
| title_full |
Development Financing during a Crisis : Securitization of Future Receivables |
| title_fullStr |
Development Financing during a Crisis : Securitization of Future Receivables |
| title_full_unstemmed |
Development Financing during a Crisis : Securitization of Future Receivables |
| title_sort |
development financing during a crisis : securitization of future receivables |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/04/5392498/development-financing-during-crisis-securitization-future-receivables http://hdl.handle.net/10986/19672 |
| _version_ |
1764440286513070080 |
| spelling |
okr-10986-196722021-04-23T14:03:43Z Development Financing during a Crisis : Securitization of Future Receivables Ketkar, Suhas Ratha, Dilip ACCOUNTING ASSET BACKED SECURITIES ASSET SECURITIZATION ASSETS BALANCE SHEET BANK DEPOSITS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY PROCEDURES BOND BONDS BORROWING BORROWING COSTS CAPITAL FLOWS CAPITAL MARKET CAPITAL MARKETS COLLATERAL COLLATERALIZATION COMMERCIAL BANKS COMMERCIAL LOANS COMMODITIES COMPOUNDING COST SAVINGS CREDIT RATING AGENCIES CREDIT RISK CURRENCY DEVALUATION DEBT DEBT RESTRUCTURING DEBT SERVICING DEVELOPMENT FINANCE DEVELOPMENT FINANCING DISCLOSURE DOMESTIC CAPITAL MARKETS ELASTICITY OF DEMAND EMERGING MARKETS EQUITY CAPITAL EXPLOITATION EXTERNALITIES FINANCIAL CRISES FINANCIAL INFORMATION FINANCIAL SUPPORT FIXED COSTS FLOATING RATE NOTES FOREIGN CURRENCY FUELS GLOBAL CAPITAL GLOBAL MARKETS HARD CURRENCY INCOME INSURANCE INSURANCE COMPANIES INTEREST COSTS INTEREST PAYMENTS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT BANKERS INVESTMENT BANKING INVESTMENT BANKS INVESTMENT CLIMATE INVESTMENT PROJECTS INVESTOR CONFIDENCE ISSUERS LATIN AMERICAN LAWS LEGAL PROVISIONS LIQUIDATION LIQUIDITY LITIGATION LOCAL CAPITAL MARKETS LOCAL CURRENCY LONDON CLUB MATURITY METALS OFFERINGS OIL POLICY MAKERS PRIVATE DEBT PRIVATE PLACEMENT PROPERTY RIGHTS PUBLIC POLICY RETURN ON EQUITY RISK MANAGEMENT ROYALTIES SANCTIONS SECURED DEBT SECURITIES SETTLEMENT SOVEREIGN RISK TAX REVENUE TAX REVENUES TAX SHARING TRADE FINANCE TRADE FLOWS TRANSACTION COSTS WILLINGNESS TO ACCEPT Mexico's Telmex undertook the first future-flow securitization transaction in 1987. From then through 1999, the principal credit rating agencies rated more than 200 transactions totaling $47.3 billion. Studying several sources, the authors draw conclusions about the rationale for using this asset class, the size of its unrealized potential, and the main constraints on its growth. Typically the borrowing entity (the originator) sells its future product (receivable) directly or indirectly to an offshore special purpose vehicle (SPV), which issues the debt instrument. Designated international customers make their payments for the exports directly to an offshore collection account managed by a trustee. The collection agent makes principal and interest payments to investors and pays the rest to the originator. This transaction structure allows many investment-grade borrowers in developing countries to pierce the sovereign credit ceiling and get longer-term financing at significantly lower interest costs. The investment-grade rating attracts a wider group of investors. And establishing a credit history for the borrower makes it easier for it to access capital markets later, at lower costs. This asset class is attractive for investors-especially buy-and-hold investors, such as insurance companies-because of its good credit rating and stellar performance in good and bad times. Defaults in this asset class are rare, despite frequent liquidity crises in developing countries. Latin American issuers (Argentina, Brazil, Mexico, and Venezuela) dominate this market. Nearly half the dollar amounts raised are backed by receivables on oil and gas. Recent transactions have involved receivables on credit cards, telephones, workers' remittances, taxes, and exports. The potential for securing future receivables is several times the current level ($10 billion annually). The greatest potential lies outside Latin America, in Eastern Europe and Central Asia (fuel and mineral exports), the Middle East (oil), and South Asia (remittances, credit card vouchers, and telephone receivables). One constraint on growth is the paucity of good collateral in developing countries. Crude oil may be better collateral than refined petroleum. Agricultural commodities are harder to securitize. Another constraint: the dearth of high-quality issuers in developing countries. Securitization deals are complex, with high preparation costs and long lead times. The ideal candidates are investment-grade entities (in terms of local currency) in sub-investment-grade countries (in terms of foreign currency). Establishing indigenous rating agencies can slash out-of-pocket costs. Developing standardized templates for certain types of securitizations might help. A master trust arrangement can reduce constraints on size. Multilateral institutions might consider providing seed money and technical assistance for contingent private credit facilities. 2014-08-26T15:22:16Z 2014-08-26T15:22:16Z 2001-04 http://documents.worldbank.org/curated/en/2001/04/5392498/development-financing-during-crisis-securitization-future-receivables http://hdl.handle.net/10986/19672 English en_US Policy Research Working Paper;No. 2582 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |