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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Resry who wrote (17426)	2/14/1998 4:45:00 PM
From: Spots	Respond to of 97611

Great post. I continue to become educated. Glad I put my large foot into mouth for the price of tuition. Refuse to comment on size of mouth, as wife has handled that sufficiently in the past. Regards, Spots

To: Resry who wrote (17426)	2/15/1998 5:35:00 PM
From: Weekapaug	Respond to of 97611

Resry, Thanks for clarifying the factor issue for me. I receive letters all the time asking if I would like to turn my receivables over to them? But, I think of my accts rec as a savings acct. Sooner or later they pay! If they become to slow, just add a little to there next bill or give less discount. "factor it in on acct basis," as you said they do. Still, I'm a little nervous about CPQ and this factoring issue. I don't hear DELL doing this? They are the low cost producer. Stragetically it may be right short term with prices falling as fast as they are? Long-term it may also be good if the rhythm of falling prices is constant? As the factoring company is always chasing dollars on older machines that cost more? Just an opinion, Ken

To: Resry who wrote (17426)	2/15/1998 6:36:00 PM
From: steve	Read Replies (1) \| Respond to 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

To: Resry who wrote (17426)	2/16/1998 7:04:00 AM
From: Elroy Jetson	Respond to of 97611

I think its clear that Compaq sold their receivables to Factors to be able to borrow money in a way that doesn't show up as debt. Buying DEC soon after Tandem means increased debt to equity ratios. Selling receivables is debt that doesn't get included in the debt to equity ratio. To get the very cheapest rates possible, it is VERY likely that Compaq has retained the ultimate risk of default on these receivables. While indemifying the Factor may appear to preclude calling this a sale, it is never the less considered a sale of assets rather than added debt. Its simply a mechanism to maintain the highest possible credit rating and thus the lowest possible rates.