Receivable-based finance Michel Jansen Amador Malnero CFO Clondalkin ING Working Capital Solutions
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Agenda
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• Clondalkin’s refinancing and the added value of using receivables Michel Jansen Clondalkin
• Deep dive into receivable-based finance Amador Malnero ING
• Implementation experience from the perspective of Clondalkin Michel Jansen Clondalkin
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Clondalkin’s refinancing and the added value of using receivables Michel Jansen CFO Clondalkin
Clondalkin Group
• Leading international producer of high value added packaging products and services
• >€ 700m revenues with strong and consistent cash flow generation
• 35 locations in 8 countries
• Market leader in secondary healthcare packaging with #1 position in North America and #3 position in Europe
• Leading positions in European flexible packaging markets
• Well diversified business portfolio and geographic footprint
• Well invested facilities
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Each division has a blue chip customer base
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Specialist Packaging (55% of sales) Flexible Packaging (45% of sales)
Foils, Laminates &
Coatings
Engineered films
• Folding cartons, leaflets, literature, inserts and labels • Laminates of aluminium, paper and film
• Resin based laminates
Setting the Scene
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Issuance high yield bonds:
€170m fixed rate bonds maturing in 2014;
€413m floating rate bonds maturing in 2013 In light of the upcoming maturities of the bonds, beginning
of strategic reflection on the refinancing. Objectives:
• Refinance existing debt
• Reduce leverage
• Reduce financing costs
Several routes are pursued with implementation beginning in 2012
and target closing before mid 2013:
• Sale of various divisions in the group both in Europe and USA
• Refinancing of the senior Revolving Credit Facility
• Issuance of new debt in the markets
• Setup of off-balance sheet trade receivables securitisation
transaction
2004 2012 2007 2012 - mid 2013
Clondalkin mandates ING as sole arranger for a €90m
equivalent transaction
Considerations:
• Multi jurisdiction and multi currency businesses (35
sites in 8 countries selling to > 130 countries)
• Decentralized collection structure (10 different local
ERP systems)
• Difficult environment to launch a Company wide
Securitization project
May 2013
Scope of the Project: the challenge
• Deliverables:
Minimum funding > €60 million
High advance rate on the receivable book (>80%)
Funding at acceptable pricing levels
Off Balance
Multi jurisdictions
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Sources Uses
Net Cash proceeds from disposals 135 Repayment of borrowing 585
Cash proceeds from receivable-based finance 65 Cash to balance sheet before fees 52
Term B Loans 349
Existing Cash 88
Total sources 637 Total Uses 637
• Timing:
Within five months
Parallel to disposal process and refinancing process
• Costs
Set-up costs < 2.5% of maximum program amount
Minimize costs for maintaining the structure
Clondalkin structure visualised
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1. Each seller sells eligible receivables to ING on
a daily basis
2. On a monthly basis ING pays the purchase
price on portfolio to Clondalkin Acquisition BV
(hereafter Clondalkin or Master Servicer)
3. Clondalkin, as subordinated lender pays to ING
the loan sized to equal the required reserve
(10-15% program)
4. The Master Servicer passes the collections on
receivables sold to ING
5. In case of defaults under the receivables,
Atradius as credit insurer pays 90% of each
claim to ING
Purchaser
Atradius
Credit Insurer
Clondalkin Acquisition B.V.
Master Servicer /
Subordinated lender)
Clondalkin OpCo 1
(Seller)
Clondalkin OpCo …
(Seller)
Clondalkin OpCo x
(Seller)
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2 3 4
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Securitization: an essential piece
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• The Group entered into a Receivable Purchase Agreement (RPA) with ING to sell its trade receivables
• Off-balance financing facility
• App. 80% advance rate (testimony to strong book)
• Initial proceeds €65 million (May 2013)
• Maximum program amount €90 million
• All-in finance costs c. 4.6% p.a. (incl. cost of maintaining the facility)
• Daily, weekly and monthly reporting routines by our businesses of the sales and cash receipts
Deep dive into receivable-based finance Amador Malnero Managing Director Working Capital Solutions - ING
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Setting the scene
Scarcity of liquidity Stricter regulations Economic downturn
Economic environment pressures profitability
Basel III and regulation of FI’s
are constraining capital and
lending
Liquidity is scarce and banks are de-leveraging
• Working capital management has moved to the top of the agenda
• Worldwide receivable financing has increased from €1.3tr in 2007 to €2.2tr in 2013 (Europe €1.4tr¹)
• Treasurers seeking ways to unlock funds trapped in O2C and P2P
• Banks focusing more on flow and trade products
• EU Late Payment Directive
1. Factor chain international;
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• Cash flow improvement / Working capital optimisation
• Financial ratio management
• Improve return on capital employed
• Funding diversification
• Pricing benefits
Drivers for clients to choose working capital products
Single debtor
A/R A/R
A/R
A/R A/R
A/R
A/R A/R
A/R
A/R A/R
A/R
Receivables Pool
Non-granular portfolio
TRPP
Trade Receivables
Purchase program
Single/multiple
invoice(s)
ICRF
International Corporate Receivables Finance
Approach:
Granularity:
ING Solutions:
Multiple debtors
ING’s receivable-based financing solutions
Portfolio approach
Granular portfolio
• Each solution depends on the number of debtors and volume of trade receivables
• Each solution is tailored to the specific needs of the client
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Method of funding using
securitisation techniques
Principles of TRPP
Structures mitigate the
traditional credit risk
Structures set up in
accordance with S&P
methodology
• Granular homogeneous pool of assets
• Isolated from credit risk of the originator; transferred to ING via true sale
• Continuously refilled with new assets
• Reliance on performance of portfolio for repayment
• Insulation from or mitigation of the exposure to the originator events
• Credit enhancement typically up to AA
• Ring-fencing, true sale of the pool of receivables
• Credit enhancement by dynamic reserves
• Structural mechanisms activated by triggers or financial covenants
• In order to achieve equivalent of AA rating, analysis of:
pool historical performance and
transaction structural features
Key principles of TRPP (Trade Receivables Purchase Program)
Obligor 2
Obligor 3
Obligor 1
Obligor 4
Obligor …
Obligor N
Simplified TRPP: portfolio structure
Portfolio of trade
receivables
* please note that multiple-originators and multiple-jurisdictions could be brought under one program
Purchaser
Receivables Purchase Agreement
Servicing Agreement
Receivables
Purchase
Price
Collections
True sale
Credit Insurer
(if any)
Collections
Receivables
Products
Originator*
Credit
Insurance
Policy
Portfolio approach with the seller selling a diversified pool of trade
receivables from multiple debtors
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Key benefits of TRPP for Clondalkin
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Funding
• Provides funding
access to lower rated
clients…
• Allows competitive
pricing compared to
other funding sources
• Scalable to finance
trading growth
• Diversification of
funding sources
Off-balance sheet
treatment
• Possibility to achieve off-
balance treatment
- credit insurance
- substantial transfer of
risks and rewards
(auditor confirmation)
• Strong balance sheet
management tool
- improved financial
ratios
- lower pricing grid
thanks to ratios
enhancement
Flexibility
• Customised
(organisation structure
and objectives)
• Portfolio approach
provides flexibility in
terms of pool
composition
• Multiple jurisdictions
and originators possible
• Silent assignment: no
impact on commercial
relationship with debtors
Management tool
• Encourages best
business practices
through due diligence
of policies, procedures,
systems and data, and
dynamic monitoring of
portfolio's performance
• Centralisation or
supervision of the
servicing by the master
servicer
TRPP: A powerful tool for managing working capital needs
Implementation experience from
Clondalkin’s perspective
Michel Jansen
CFO Clondalkin
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Experience and Learnings: the funding
• The Initial Funding size is determined by
the size and quality of the Accounts Receivable Book
eligibility criteria (agreed invoices to be acquired)
historic performance of the collections process (cash reserve rate)
• The Funding fluctuates minimally over time under influence of:
the balance between collections and new issued invoices
quality of the order to cash process
• Flexible structure: allows for partial implementation (bridging facility through two tier structure).
• Resulting in a permanent funding, funding grows as the business grows
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Experience and Learnings: the structure
• Automate the data flow and reporting
We have co-developed a cloud based platform for the data flow and reporting requirements
Manage eligibility criteria
Monitor historic performance of the collections process
• We gained significant insight in our accounts receivables through the scientific approach enforced through the securitization process.
Develop or buy tools that help improve the performance of the order to cash process (reminder on line and dispute management system)
Detailed insight in credit terms and its development
Flexible structure: allows for partial implementation (bridging facility through two tier structure).
• Becomes routine
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Concluding remarks
• In ING we found a partner that was willing to pioneer with us
• We reduced the quantum of debt required from the Financial Markets
• We diversified our financing structure
• The structure is flexible, resulting in permanent funding with funding levels increasing in line with growth of the underlying business
• We lowered the average financing costs compared to the alternatives available at the time
• We realized a significant Working Capital reduction
• We gained significant insight in our accounts receivables through the scientific approach enforced through the securitization process
Nobody told them it could not be done …........... So they just did it!
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Q&A
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Disclaimer
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This presentation prepared by ING Bank N.V. (“ING”) is intended to provide information and to serve as a basis for discussion purposes only. While
reasonable care has been taken to ensure that the information contained in this herein is fair and reasonable as at the date hereof, ING has not independently
verified the information herein and accordingly makes no representation or warranty, express or implied, that the information contained herein is accurate,
current, complete or correct. Any estimates in this presentation are provisional only and for indicative, preliminary and illustrative purposes only. This
presentation does not constitute any valuation, appraisal or advice and there can be no guarantee that any projected results will be achieved. ING reserves the
right, but does not have any obligation, to amend or change such projections or assumptions if ING deems it appropriate to do so. This presentation does not
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