Securitization is the process of selling receivables to third parties. We study this in the capter on accounts receivable in Intermed I. Turns out the wondeful thing about the process is that is does not have to be shown as debt. The sale of the receivables gets a higher credit rating than the seller of the receivable. The transaction is moved to a Special Purpose Entity SPE. The transaction carries the credit rating of the SPE not the issuer and it is now shown as debt on the balance sheet of the issuer. The article goes on to cite cases where this was non recourse so the firm’s creditors could not ‘reach’ teh receivables in a bankruptcy transaction. Interesting stuff, but does anyone grasp the significance, we will discuss this in class.
Professor Elam
Accounting & Investing Info for San Antonio A & M
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2 responses to “Debt in Disguise”
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is the advantage that by selling these receivables and it not showing on your credit, that you can still borrow (and increase your debt) since lenders will not “know” (or see) the Receivables on your credit?
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Mannie
Good thinking, that would be one of the advantages listed in the article, such off balance sheet transaction are an increasingly complex part of the accounting equation, gee that didn’t change the current ratio CA / CL did it?LikeLike
Professor Elam 
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