Bon-Ton Credit Put Option – AR Put
Credit Put Option- AR Put- Receivables Put – Bon Ton Bankruptcy Protection | Trade Risk Strategies
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Trade Risk Strategies assists companies all over the globe protect their accounts receivable from unexpected customer bankruptcy. We are experts with the issuance of bank issued and private hedge fund credit put options (also known as AR puts). We have structured many put options on popular names including Bon-Ton. We provide consultations to our clients interested in Bon-Ton put options and assist our clients with negotiating the most up to date rates. We originate and set up AR put contracts with our financial partners on behalf of our clients. We can have contracts executed the same day if necessary.
What is a Bon-Ton Put Option?
When a supplier receives a purchase order from Bon-Ton, or any retailer, credit lines and payment terms are established. The supplier invests money to manufacture or acquire the goods and absorbs the cost of salaries, overhead, and pays for shipping to deliver the goods to the client. This is done well before payment is made from the retailer. Often times suppliers will “self insure” the goods, meaning, they will ship the goods without any payment protection and take a loss should there be a default. Sometimes suppliers don’t realize that a credit put option can be purchased to hedge their risk, and other times suppliers chose to absorb the risk themselves. Suppliers who self insure indicates that the retailer represents a small portion of the supplier’s overall business. For companies whose relationship with a retailer represents a large portion of their business, assuming there is no credit put option in place, a bankruptcy default filed by the retailer could be devastating to the future of the supplier’s business.
A Bon-Ton credit put option is an agreement between the supplier and a third party “specialty” financial firm who will buy the claim from the supplier if Bon-Ton were to file bankruptcy. A contract is established at the then prevailing rate depending on retailer risk and market volatility. Fees for the receivables put are paid based on the rate and length of the term. If a bankruptcy event occurs during the term of the contract, the supplier would be paid 100% of the contract value (the exposed open receivables) at a predetermined time after the bankruptcy court has confirmed that the supplier is a named creditor on the bankruptcy petition.
A Bon-Ton credit put option can be an effective way for a company to leverage the financial capacity of a third party while protecting the safety of their cash flow. In the absence of credit insurance – which is no longer available as coverage on retailers that are deemed high risk – AR puts can mean the difference between a supplier taking an catastrophic hit to their cash flow or remaining solvent should a bankruptcy event took place.
What types of firms offer Bon-Ton AR Puts?
AR puts are offered by only a handful of financial firms. The market is limited for this type of contract since it is considered highly specialized and speculative. Trade Risk Strategies has originated many Bon-Ton credit put options and we are well known in the industry and respected by our financial partners. We know the market well and can place a Bon-Ton AR put option with the most appropriate firm.
Benefits to Receivables Put Options
- It is not a requirement to cover the entire accounts receivable portfolio. Receivable puts are designed for single name coverage.
- With most put options there is no deductible or coinsurance required.
- Straightforward put option contract between two parties.
- Claims paid quickly once supplier is listed as a creditor on bankruptcy petition.
Credit Put Option Considerations
- Rates that are not locked in are subject to change based on financial news and market availability.
- Credit put options are available to cover a limited number of publicly traded entities.
- With few exceptions, most put option fees are due upfront at contract execution.
What is the cost of an AR Put?
Rates are based on coverage amount multiplied by monthly rate multiplied by the number of months needed.
How long does it take for credit put option to be put in place?
- Depending on the financial entity issuing the receivable AR put, credit put options can be secured the same day or can take as long as 3o days.
- Coverage is bound once the put option contract is executed and fees paid, therefore, timeline also depends on the client.
* Note: This is information is not an indication of Bon-Ton’s financial strength or lack thereof. The decision to secure a credit put option on Bon-Ton or any risk is solely up to the client.
Let Trade Risk Strategies help you protect your business. Fill out the form to the right or call us at 1-844-315-4985 for a custom, one-on-one consultation.
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