Asset Based Finance

Atradius offers exporters of movable capital assets the option to take into account the resale value of the underlying capital assets when the risk is assessed and accepted.. Atradius will, besides taking into account the extent to which the capital goods can be resold, also involve the cash flow forecast. Country risk, of course, also will be taken into consideration.

When exporting movable assets under regular export credit insurance facilities, the creditworthiness of the buyer is the principal criterion when determining whether the risk can be accepted. This buyer risk and country risk could, under certain circumstances, be employed on a more flexible basis, if the availability of the asset itself could offer possible mitigation of loss should this loss occur. For export credit insurance in the aircraft and shipbuilding industries, this could create additional opportunities.

Covered risks

Besides the usual buyer and country risk, asset based finance transactions also involve a number of specific risks, such as repatriation risk, market value risk and resale risk.

Repatriation risk

Repatriation risk is the risk that in case of non-payment capital goods cannot be repossessed, nor be repatriated to the Netherlands (or to another approved country).

Market value risk

Market value risk is the risk that the value of the capital goods, in case of resale, has become less than was foreseen at the time of underwriting of the risk.

Resale risk

Resale risk is the risk of financial loss when it takes longer than foreseen to resell the capital goods. This includes the costs of seizure, repatriation, resale, storage, interest, etc.

Type of goods

Atradius is willing to consider applications for asset-based finance transactions, if the movable capital goods can be repatriated and have sufficient value. The capital good must have sufficient value, because the costs of repatriation, amongst others, should counterbalance their value.

Security and ownership

The security that enables the capital goods to be repossessed in the event of non-payment, will be in the form of legal ownership, a mortgage right or another right, which makes repossession possible. Asset-based finance transactions will therefore always need to be structured on the basis of a finance lease or mortgage right. Some legal systems offer the possibility, for example, to have a right of retention without having the legal ownership of the asset concerned.

Future market value

Prior to the underwriting of the risk, Atradius will have to assess the future market value. This is generally done on the basis of an objective future value study that is carried out by independent experts and is provided by the exporter. For the exporter it is of course also possible to give Atradius a guarantee of the future market value, in which case the above mentioned analysis will not be necessary. An important condition for the underwriting of the risk is that throughout the entire repayment period of the credit, the capital good has a future market value that is at least in step with the remaining debt.

Repatriation and resale

Atradius will need to determine whether it is legally possible to repatriate the capital good and to do so within a reasonable period of time. The concerning legal opinion will have to be drafted by an independent legal advisor who is an expert on the legal system of the country of the buyer.

Atradius will need to be certain that it is (legally) possible to repatriate the goods in the following cases:

• Non-payment by the buyer/debtor

• Non-payment by the country of the buyer/debtor

• Failure by the buyer/debtor to comply with maintenance obligations

• Failure to comply with obligations under asset insurance or liability insurance

Prior to underwriting the risk, Atradius will wish to determine whether the capital goods, once they have been repossessed, can be resold within a reasonable period of time.

Risk sharing

Atradius believes that it is important for the exporter and the lender of asset-based finance transactions to have a sufficient stake in the transaction. Generally, Atradius requires therefore that 30% of the risk is borne by the exporter and/or the bank.