To: Chuzzlewit who wrote (11886 ) 12/23/1999 1:55:00 AM From: stilts Respond to
Chuz and Mr. Fun: Further to my posts re Lu's securitization mechanism, I would guess that, if indeed Lu rec'd a note from the Special Purpose Vehicle, it was for the $700 mil of excess receivables constituting "collateral", not the $600 mil of receivables that Lu sold to the SPV who then resold to the bank entities. If my guess is correct, that would mean the Lu person was correct when he told Mr. Fun that receivables were converted into a note constituting "other assets". He was not talking about the $600 mil of receivables which were sold for cash to the SPV and thence to the bank entities; rather, he was talking about the $700 mil of receivables which were transferred to the SPB to provide collateral, or a cushion, for the bank entities. In other words, I presume there are two sums of receivables involved in the SPV securitization: one sum was sold for cash to the bank entities, the other constitutes a cushion for the bank entities to have recourse to the extent any of the $600 mil of receivables they purchased might not be collected. (If, as anticipated, the purchased receivables purchased by the bank entities are collected in due course, the proceeds of the other, $700 mil of "collateral" receivables would then be transferred back from the SPB to Lu to satisfy the note or "other asset". The $600 mil of receivables sold for cash would be removed entirely from Lu's assets and replaced with cash on day one of the transaction. The $700 mil of receivables constituting the "cushion" would remain on Lu's books in the form of a note payable by the SPV, i.e., an "other asset", until they are collected and paid over by the SPV to Lu (or the bank entities should any of the $600 mil of receivables prove uncollectable).
