ITFA has hit the 2017 conference trail
moderating two panels at the recent BCR Supply Chain Finance Summit in
Frankfurt. Both panels drew great interest from the audience and overran their
allotted time through the sheer number of questions from a very engaged
audience. Feedback has been consistent
in viewing these panels as amongst the most thought-provoking and valuable of
the conference.
Silja Calac firstly led an ITFA insurance
committee team talking about the function and current challenges facing Credit
Risk Insurance. ITFA is grateful to Manuel Lopez from Marsh, Simon Bessant from
Texel and Huw Owen from Liberty for taking part. This was firstly a run-through
the recently published ITFA Insurance Guidelines which aims to help users and
providers of insurance achieve Basel and Insurance Act complaint policies. The
full guide is, of course, only available to members but Silja set out the main
issues for those not fortunate to enjoy membership. Whilst some of the issues
are very technical, mastering them is critical if users wish to obtain the best
possible capital relief and, at a more basic level, ensure that policies are
enforceable and valid claims can be made. The recent English Insurance Act 2015
(many policies are subject to English law even if used by non-English insureds
so the Act has relevance way beyond the United Kingdom) gives new rights to
users of insurance but a number of subtle points can arise. Discussion of the Act was a springboard to enter
into a wider survey of the credit risk
insurance market which sparked much interest as the audience realised how
powerful use of this product could be commercially. It has the ability to act
as a ''force multiplier'' allowing bigger tickets and more business to be
underwritten whilst simultaneously being capital efficient. The common belief
that claims are never paid and insurers do all they can to avoid payment was
dispelled by both brokers and underwriters. Calls at the end of the conference
for more credit insurance to be made available showed how well this panel had
hit its mark.
Sean
Edwards’s panel on Moody’s recent paper on Abengoa was both a reprise, and a
development of, the panel he moderated at the 2016 annual conference in Warsaw.
Again, Matthias Heck of Moody’s and author of the Abengoa paper took the stand
partnered, this time, by Eugenio Cavenaghi of Santander. As recipients of our regular emails will be
aware, ITFA met with Moody’s in December to discuss the implications of their
paper which suggested that, in certain circumstances, trade debt offered up to
banks as part of a payables financing programme could become bank debt. Moody’s
have since accepted in their revised adjustment methodology that a standard
i.e. automatically applicable, adjustment for users of such programmes was not
appropriate and that each situation would need separate and careful analysis.
For many members of the audience, even the possibility that such a
reclassification of trade debt existed was something of a shock and drew some
passionate responses. The discussion around the various factors which would or
could be taken into account in making this analysis was therefore both highly
instructive and, once cooler thought prevailed, something of a relief. These factors
include whether or not payment terms are changed beyond the industry norm,
changes to rights of creditors (still an issue because of the widespread use of
irrevocable payment undertakings in such structures), the size of the programme
as a proportion of a corporate’s financing needs, collateralisation or security
being granted by the buyer and above all, the transparency of the programme.
This was one of the most popular panels of the whole conference as attested by
the conversations that continued into the break and beyond. ITFA will be
producing a paper on this important subject with guidance and as much
clarification from Moody’s as we are able to get.
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