What Is Structured Asset Finance?

Structured finance is a widely used but rarely defined concept. To sum up, various expressions can be summarized as follows: Structured financing refers to the use of special purpose entities (special purpose vehicle, SPESorSPV) to divest specific assets with future cash flows, and use the specific assets as the target for financing. It can also be understood that the specific assets of an enterprise are replaced from its balance sheet (asset replacement) with cash assets, and high-efficiency assets are added under the condition of constant asset-liability ratio, mainly flow assets.

Structured finance

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Structured finance is a widely used but rarely defined concept. A variety of expressions are summarized as follows: Structured financing refers to the use of special purpose entities or special purpose vehicles (SPEsorSPV) by companies to have specific cash flows in the future.

Structure financing

The so-called structured financing is a method of financing in the capital market. This method is not to raise funds by issuing bonds, but to sell future recoverable cash flows to obtain financing by issuing asset-backed securities. In most cases, the issuer of an asset-backed security is the initiator of the underlying assets of the security.

These assets cover a wide range of types, including commercial real estate mortgage securities,

Generally speaking, "structured financing" is mainly based on the structure of the statement. Have

The company manages company resources with the goal of increasing the company's market value. An operating activity will only increase the value of the company if the present value of the future cash income it expects to generate exceeds the initial cash outlay for the implementation of this plan. Unless the company is able to rely entirely on internally generated funds to support its own operating activities, the company must raise funds externally. If the business does not produce enough

From the development history of the US structured financing market, eight factors play a very important role. These elements often complement each other, and the development of one element will promote the development of other elements. It is important that these eight elements should go hand in hand and develop together.

1. A sound legal system For each securitization transaction, a sound legal system should be established to protect the legitimate interests of investors in basic assets. Most importantly, when the initiator / seller is in bankruptcy, the law must protect the investor's right to recover the underlying cash flows of the securities. Therefore, for securitization transactions, it is necessary to establish

The object of the structured financing evaluation is securities that are mortgaged by assets or third-party credit. The purpose is to reveal the credit quality of the assessed securities during the entire issuance period and to implied the level of realisation of the securities before they expire. The unique feature of structured financing is that the operation of assets is completely free of the problems of the original owner of the asset's continued operation, management, and insolvency, and there is no question of operating history or previous operating activities. Separating these assets from those of the original owner is the key to a structured finance assessment, as the assessment can focus directly on specific assets or

Structure financing is different: the characteristics of equity financing and debt financing:

Using structured financing can realize financing for enterprises without increasing the asset-liability ratio.

Most structured financing adopts the treatment method of off-balance sheet financing to transfer the underlying assets off-balance sheet, thereby achieving the purpose of improving the balance sheet structure. For example, in many industries, when the asset-liability ratio reaches a certain level, relevant regulations will have certain restrictions on corporate financing. For example, listed companies with a debt ratio of 70% will not be able to raise funds. With the structured financing method, on the premise that the asset-liability ratio is unchanged, the company can sell some of its assets for lease, thereby stripping the asset from the balance sheet, realizing financing, and reducing risks on the balance sheet. Total assets and increase capital adequacy ratio.

Case: In November 1993, the troubled British hotel company QueansMoatHouses Group sold some hotels in Germany to directors and senior management, and then leased them back. This transaction erased DM 270 million of debt from the group's balance sheet, and through the use of financial policies, the group's operating profit in the group's statements increased to $ 32 million in the year the transaction became effective.

The use of structured financing is conducive to reducing the cost of capital and enabling enterprises that cannot meet the financing requirements under traditional methods to achieve financing.

Structured finance

Traditional equity financing or debt financing is based on the overall credit of the company. Stock financing must share future returns with investors based on all existing equity, resulting in dilution of equity, which must meet a higher level of profit. Financing must be based on the overall credit of the enterprise to determine the cost of financing. It must meet high debt issuance conditions in terms of liquidity, debt ratio and profitability. The guarantee provided by the enterprise is generally the overall credit of the enterprise. Participate in such financing activities on the "face" of the overall strength of the enterprise. From a micro perspective, it is a waste of resources for an enterprise to use the overall assets to finance without distinction. Structured financing only requires that the underlying assets, projects, or other rights and interests have stable and predictable cash flows. Or other equity as a source of repayment. Enable high-quality assets to be separated from the issuer's own credit and obtain high-quality funds with high-quality assets. For small and medium-sized enterprises that have difficulty in directly accessing the capital market to raise funds and have excellent assets that can generate stable cash flows, they can be financed at the lowest cost through structured financing. The funds required by the enterprise to ensure the smooth operation of the business have important practical significance for China's SMEs.

The use of structured financing can adjust and optimize specific items in the company's balance sheet, thereby optimizing the financial situation, increasing the leverage of its own funds, and increasing the return on equity.

According to the specific requirements of their own financial characteristics and financial arrangements, companies can use structured financing to provide an asset financing method with a repayment period that matches the repayment period of their assets, adjust and optimize specific items in the balance sheet, and revitalize existing assets. Increase asset liquidity. For example, structured financing corresponding to accounts receivable can increase cash flow, reduce accounts receivable, promote sales, and increase current income. Adopt sale sand lease back to the company's inventory, sell the inventory assets such as raw materials needed in the production process of the enterprise to the lessor, thereby stripping it out of the balance sheet, or use outsourcing and lease back) scheme, entrusting the purchase of raw materials and other inventory assets required by the company's production process to the lessor for sale, so that this part of the inventory assets do not enter the balance sheet, reduce operating costs, improve cash flow and asset-liability ratio. For operating equipment, the company divested corporate assets and other assets, adjusted the amortization and depreciation methods, and avoided the use of equity capital for purchases, which will reduce cash reserves, and the use of loans for purchases will increase the debt ratio, and provide the company with the best purchase capital , Optimize the profit and loss statement, and realize the requirements of the enterprise on the indicators of profit, cost, expenses, etc., so as to achieve the required return on equity and return on assets, and ultimately optimize the financial position and maximize shareholder value.

Structured finance, as an effective risk management debt management tool and financing channel, is highly professional and complicated, involving multiple participating entities. Its origins can be traced back to securitization in the 1970s and affiliated with specific purposes. The company (special purpose subsidiaries) has developed rapidly since 1970, and the scope, carriers, and methods of structural financing have become increasingly diverse and complex. It has been widely used by American companies and financial institutions. It is tailored to customers and customers. The company's prosperity played an important role. ^[1-2]