In early 2005, the first large securitization of trade receivables was completed, with over DKr1 billion ($1.75 billion) of trade receivables sold into an existing platform.
Although details of the transaction are confidential, the structure was able to achieve both off-balance-sheet treatment from an accounting perspective and an acceptable true sale legal opinion for the rating agencies. Moreover, the transaction was achieved without using credit enhancements or synthetic structures that were previously thought necessary to deal with the risk of interference from an insolvency administrator. Particular care was also taken to ensure that terms such as the warranties and indemnities did not result in the seller retaining excess risk. Interestingly, from an accounting perspective, the German approach to off-balance-sheet treatment was considered in determining whether the structure worked.
In an earlier edition of IFLR (Vol XXIII, March 2004) Bech-Bruun Dragsted reported on the progress being made in Denmark with securitization. The difficulty at the time lay with the potential ability of an insolvency administrator to deem a securitization transaction as an unsecured financing rather than a true sale of the receivables. This possibility had severely restricted the securitization market in Denmark.
Whether this first successful transaction will result in growth in the market remains to be seen. The volume of receivables necessary to drive the transaction limits the potential for a large number of Danish companies. As a consequence, arrangers are now looking to new structures that will open the market up to small and mid-sized enterprises. This is the new challenge for Denmark in 2005.
Steen Halmind and Ian Tokley