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About Receivable Financing
Bulk Financing of Lease Receivables (or Structured Financing) is a sale of receivables between two parties. One of the parties (the “Seller”) is the company selling the receivables and the other is an entity that buys the receivables (e.g. SPV).
The SPV issues debt obligations in order to raise funds that are then used to purchase the receivables from the Seller. After the initial sale, the SPV uses the collections received on the receivables (which it now owns) to pay the interest and principal on the debt obligations that it has issued. Once the obligations of the SPV have been satisfied, all remaining collections on the receivables are then returned to the Seller.
Utilizing certain credit enhancements structured into the receivable transaction, the SPV is privately rated and enjoys the lowest possible cost of funds. If the Seller uses the proceeds on the sale of receivables to retire its debt, the interest costs on that debt are then essentially replaced by the interest costs of the SPV because all cash flows over and above those required to satisfy the SPV obligations are returned to the Seller.
In most cases, the Seller continues to service the sold portfolio so the transaction is seamless to the lessee, the Seller’s client. This increases customer satisfaction and retention.