Etg Vendor Protection Presentation

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Etg Vendor Protection Presentation

  1. 1. Account Receivables Put Options “Vendor protection when it counts” TM Steven AzarbadPRESENTATION TITLE GOES HERE Co-Founder and Principal (212) 300-6790 steven.azarbad@etg-capital.com David D. Tawil Co-Founder and Principal (212) 300-6791 david.tawil@etg-capital.com VENDOR PROTECTION WHEN IT COUNTS 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  2. 2. The Riskiness of Trade Receivables • Vendors transact with numerous customers. In terms of cost, resources and time, it is “expensive” to monitor the creditworthiness of customers, especially in the case of a customer in financial distress, undergoing a turnaround, reorganizing, liquidating or experiencing other special situations. • Even where vendors have credit risk management options (e.g., trade insurance, receivables factoring), vendors are often left without options when particular accounts become high risk. • Even worse, if the customer eventually files for bankruptcy, valuation of vendor claims is complex and uncertain. • Finally, when vendors provide goods and services to customers that have sought bankruptcy protection, the circumstances and events of a bankruptcy case are confusing and uncertain. 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  3. 3. What Are Put Options? ETG Capital‘s Receivable Put Options Vendor Protection Process ETG Capital offers credit risk protection through its Put Option Agreement Vendor  Under a Put Option Agreement, upon the occurrence of certain events, a vendor would have Purchase the right to put trade claims to ETG Capital Claim Price Put Option By shifting the credit risk of a particular account to ETG Fee Capital, a vendor could continue to supply or service a customer, particularly a high risk customer, and plan future sales volume, while receiving protection against particular credit events Put Option Goods / Payment ETG Capital’s Put Options provide a tailored form of Services protection. Bankruptcy Claim  Put Options apply to a particular account of a Distribution vendor, not its entire receivable portfolio Company  The duration of a Put Option is also flexible; A Put Option can be structured to cover a period as short as 3 months or as long as 5 years Pre Credit Event: Prior to the occurrence of a Credit Event, a vendor provides goods and services to the  Unlike trade insurance and factoring agreements, Company. Simultaneously or shortly thereafter, a vendor a Put Option cannot be canceled or modified by purchases from ETG Capital a Put Option in exchange for ETG Capital to drop or limit coverage a Put Option Fee. Post Credit Event: Following the occurrence of a Credit  The confidentiality of a Put Option allows a Event, a vendor sells ETG Capital its claim against the vendor to continue to supply and thereby, support Company at the prenegotiated Purchase Price (in most its customers without increasing risk exposure cases, 100%). ETG Capital then seeks a distribution from the Company. 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  4. 4. Types of Put Options and Key Terms Each Put Option can be tailored to meet a vendor’s credit protection needs: • There are basically two types of Put Options: Pre-Bankruptcy Put Options and In- Bankruptcy Put Options – A Pre-Bankruptcy Put Option is a right to sell a claim against a company that could file for bankruptcy protection – A In-Bankruptcy Put Option is a right to sell a claim against a company that is operating under bankruptcy protection and that could wind-down and liquidate • Below is a description of the salient terms of ETG Capital’s Put Options: – Claim Purchase Rate: The rate at which ETG Capital will purchase the claim upon the occurrence of a Credit Event (100% or less, at the discretion of the vendor). – Covered Period: The period of time during which a Put Option covers a vendor’s sale of goods and provision of services. The Covered Period can be as short as 3 months to as long as 2 years – Credit Event: In the case of a Pre-Bankruptcy Put Option, a bankruptcy filing of the company. In the case of a In-Bankruptcy Put Option, a Credit Event could include a chapter 7 conversion, a confirmed chapter 11 plan that does not pay administrative creditors in full or court authorized distributions that do not pay administrative creditors in full. – Put Option Fee: Typically, a monthly fee between 0.25% and 3.50% of the accounts receivable covered to be paid by a vendor to ETG Capital. The Put Option Fee is payable upon execution if Covered Period is less than 6 months or payable quarterly in advance if Covered Period is greater than 6 months. 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  5. 5. Put Option Advantages over Credit Insurance Insurance ETG Capital Put Options Coverage Flexibility  Requires whole turnover (all accounts receivable)  ETG specializes in handling high-risk and distressed accounts receivable. We basis — not cost effective; supplier pays for offer trade credit options on single accounts, as determined by our client. coverage on accounts in good standing, which is an  ETG covers almost any public company, many private entities, in any added and unnecessary expense. industry.  Caps and limits for maximum exposure to particular  No minimum Put Option amount is required. companies.  Effective immediately on ALL outstanding accounts receivable to the  Only protects prospective (new) accounts receivable customer (not just new receivables incurred after protection is purchased). incurred after the coverage becomes effective.  ETG offers a range of options for each Put Option variable (e.g. expiration  Usually limited to annual policies with limits date, amount, etc.) decided by the insurer. (Annual cycle renewal  Applies to “successors” constraints open clients to undesirable pricing to market risks upon renewal.  Does not necessarily apply to “successor” customers. Termination -  Normally, cancelable on notice at the will of the  No right of cancellation or termination. The protection is REAL. Modification and insurer.  Triggered on a bankruptcy filing. Covered Events  Triggered on a default (bankruptcy) or a failure to pay. Product Availability  Not normally available in bankruptcy. If coverage is  Available before bankruptcy and during bankruptcy. available, it is cost prohibitive. Pricing / Cost  Only available to fully cover outstanding  Can be structured to protect sale-price (with your profit), or to cover only cost receivables (cannot protect cost only). of goods sold.  Whole turnover (all accounts receivable) basis is a  Assumes a first-loss position; there is no deductible. hidden cost.  No deductibles or surcharges or other additional costs.  Deductible costs must be considered. Surcharge  Minimal capital outflow. added to high-risk accounts.  Time and labor intensive monitoring of customer’s credit status is not  Costly customer credit status monitoring is required. necessary. Customer Education  Not a primary focus  ETG’s partners are expert bankruptcy lawyers with a solid investment banking background.  ETG provides forecasts for problematic companies and industries, understanding of the bankruptcy process, updates on distressed situations.  (ETG offers Put Options along with extensive legal and financial analysis and counsel. It is not merely a sales transaction, it is a legal and financial remedy.) 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  6. 6. Put Option Advantages over Factoring Factoring ETG Capital Put Options Coverage  Only available on whole turnover (all A/R)  ETG specializes in handling high-risk and distressed accounts receivable. Flexibility basis- not cost effective; vendor pays for We offer trade credit options on single accounts, as determined by our coverage on good accounts client.  Minimum A/R thresholds for primary factors  ETG covers almost any public company, many private entities, in any  Caps for maximum exposure to particular industry. companies  No minimum Put Option amount is required.  Effective immediately on ALL outstanding accounts receivable to the customer (not just new receivables incurred after protection is purchased).  ETG offers a range of options for each Put Option variable (e.g. expiration date, amount, etc.) Termination -  Modifiable (penalty/surcharge) or terminable at  ETG has no right of cancellation or termination. Modification and the will of the factor Covered Events Product  Not normally available in bankruptcy or  Available before bankruptcy and during (in) bankruptcy. Availability prohibitively expensive Pricing / Cost  Only available to fully cover outstanding  Can be structured to protect sale-price (with your profit), or to cover only receivables (cannot protect cost only) cost of goods sold.  Surcharge added to high-risk accounts  No deductibles or surcharges or other additional costs.  Minimal capital outflow.  Time and labor intensive monitoring of customer’s credit status is not necessary. Customer  Not a primary focus  ETG’s partners are expert bankruptcy lawyers with a solid investment Education banking background.  ETG provides forecasts for problematic companies and industries, understanding of the bankruptcy process, updates on distressed situations.  (ETG offers Put Options along with extensive legal and financial analysis and counsel. It is not merely a sales transaction, it is a legal and financial remedy.) 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  7. 7. About ETG Capital • ETG Capital Advisors LLC is a leading provider of flexible financing solutions to companies dealing with customers of high-risk. ETG Capital Advisors LLC, is the Manager of the ETG Funds, (“ETG Capital”), a family of investment funds. ETG Capital makes investments in distressed and high-yield assets, including trade receivables. Drawing from over 20 years of combined professional experience, ETG Capital provides access to creative, flexible and innovative solutions. ETG Capital is a private company funded by a number of institutions and private investors. Financials are available upon request. • Steven Azarbad is a Co-Founder and Principal of ETG Capital. Steven was a Director of Credit Suisse in the Fixed Income department within the Investment Banking division, based in New York City. Mr. Azarbad was the co-head of Credit Suisse’s vendor-facing businesses. He was responsible for sourcing and trading illiquid high-yield and distressed instruments, including, trade debt obligations. He has over ten years of experience in special situations, corporate restructuring and bankruptcy. Prior to working at Credit Suisse, Mr. Azarbad was an attorney at Weil, Gotshal & Manges where he specialized in representing large companies in their chapter 11 cases. Prior to working at Weil Gotshal, he was a law clerk for Judge Mary F. Walrath, U.S. Bankruptcy Court for the District of Delaware. Mr. Azarbad holds a B.S. in Accounting from Brooklyn College (1997) and a J.D. from Brooklyn Law School (2000). • David D. Tawil is a Co-Founder and Principal of ETG Capital. David was a Director of Credit Suisse in the Fixed Income department within the Investment Banking division, based in New York City. Mr. Tawil was the co-head of Credit Suisse’s vendor-facing businesses. He was responsible for sourcing and trading illiquid high-yield and distressed instruments, including, trade debt obligations. He has over ten years of experience in special situations, corporate restructuring and bankruptcy. Prior to working at Credit Suisse, Mr. Tawil was an attorney at Davis Polk & Wardwell where he specialized in workouts and bankruptcies. Prior to working at Davis Polk, he was an attorney at Skadden, Arps. Mr. Tawil holds a B.S. in Business Management from Yeshiva University (1996) and a J.D. from the University of Michigan (1999). 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM
  8. 8. VENDOR PROTECTION WHEN IT COUNTS 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM 152 WEST 57TH STREET NEW YORK, NY 10019 212.300.6700 WWW.ETG-CAPITAL.COM

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