SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : Compaq
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Resry who wrote (17426)2/15/1998 6:36:00 PM
From: steve  Read Replies (1) of 97611
 
With respect to selling receivables a company like Compaq would actually securitize its receivables as opposed to factoring. They would do this for several reasons. Primarily to enhance shareholder values, as analysts do not see value in receivables. Securitizing a stream of cashflows has become a favourite of financial engineers in recent years. The cost for triple A companies who actually enhance the credit transaction by guaranteeing up to but not including 25% of the transaction is measured by 25 to 50 basis points. Remember the issue here is changing the ratio's for analysts. The funds are usually lent right back and the securitizing agent picks up the fee.In reality nothing really changes for Compaq except they have now paid fifty basis points to be able to have their books look different. Compaq"s customers have no knowledge of this transaction and Compaq continues to collect from its customers. The receivable in name , on paper, has been sold to a third party and they got a fee. But Compaq guaranteed it up to the maximum allowed under GAAP. At the end of three months the book keepers settle the difference. Once a company starts down this road they have to do it every quarter or face having blips in their ratio's.

I believe they used the term factoring but they really meant securitization, which is nothing more than the Net Present Value of a stream of funds for a fee. the fee is minimal if the credit of that stream is enhanced or guaranteed by the seller.

Factoring is primarily extending credit to a cash poor company at exhorbitant terms. 1% or 2% over commercial paper would be exhorbitant for Compaq. It would be like one of us going to a loan shark till next payday.

jr
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News