Receivables Bankruptcy Protection

Bankruptcy protection on several credit risks is available | Call Trade Risk Strategies: 1-888-644-4422

A short list of retail credit risks we can provide immediate coverage on are Office Depot, Office Max, Sears, Kmart, Sears Canada, Eastman Kodak, Supervalu, Great Atlantic & Pacific Tea Co, Toys R Us & Rite Aid.

Call us or use the form at the right for an immediate quote. Your peace of mind is worth it.

When Credit Insurers Say No: Credit Put Options Say Yes

Trade Risk Strategies

Your company is a supplier for Blockbuster and you’re about to fulfill a large purchase order on behalf of the retail giant.  You call your broker to buy credit insurance and you are informed that none of the credit insurance companies are willing to cover Blockbuster due to the high risk involved. Upon hearing the news, you decide to take a chance and ship their order without  any form of advance payment or payment guarantee. It’s Blockbuster after all, you want their business!  On September 23, 2010, Blockbuster files bankruptcy, and to your surprise, you are left with a huge sum of money (receivables) that will remain unpaid and open for months, maybe even years to come.

This scenario happens all too often. Commercial trade can be risky business.

Credit Insurance is a fantastic business tool when it’s available.   Credit insurance pays a supplier when a covered company cannot honor their obligations,  including when bankruptcy is filed.  The problem in recent years has been that credit insurers have become selective with the companies they underwrite,  particularly steering clear of  underwriting coverage on financially distressed companies – such as Blockbuster, and others.  Until recently, a supplier had no option other than to assume the risk themselves once credit insurers denied coverage.  But with this risk comes the uncertainty of not knowing if their uninsured customers will fail to pay what they owe.  Not a great way to do business – particularly at a time with a country in recession and retail industry in decline. For some suppliers, a big loss could have a catastrophic effect.  In the case of Blockbuster,  there are likely many suppliers who took the chance and shipped large volumes of goods to Blockbuster on ‘open credit’  just before bankruptcy was filed. The cash flow of these companies will be put at serious risk.  The fact is, it could have been avoided with proper planning.

A new, highly specialized product called  Credit Put Options give suppliers an alternative to credit insurance, particularly for risky accounts. Credit Put Options are simple contracts between the seller (supplier) and the credit put purchaser (major financial institution). The supplier pays a fee for specified receivables during the contract period. If the supplier’s customer files bankruptcy during the contract period, the put option is exercised and the supplier is automatically paid 100% face value of the covered receivables.

Credit Put Options have the following considerations:

Benefits: Credit Put Options are available on distressed companies (unlike credit insurance) and provide 100% coverage with no deductible or co-insurance.  Coverage term is flexible,  usually between 6 to 12 months, at the seller’s option. Credit Put Options are non-cancelable and do not restrict shipments made to customers with pending bankruptcies.  Coverage is available on both private and publicly held companies and contracts can be executed immediately.

Drawbacks: Cost. A Credit Put Option, for example, may carry a fee of 1.25% per month, depending on the risk, at a cost of $75,000 for 12 month term for every $500,000 covered. Rates can be higher or lower depending on when the put option is executed. Credit Put fees are moving targets, fluctuate daily, and are based primarily on the financials of the subject company and the investor’s appetite for risk.  Credit Put Options pay claims only upon a straight bankruptcy event. It does not pay claims for any other reason.

The Bottom Line: Credit Put Options are a good alternative when credit insurance is not available. Despite the higher expense, protection provided by a Credit Put Option can help a supplier justify continued sales to a troubled client without taking on risk or shortening credit terms. The supplier can ship confidently to the distressed client company without taking on the risk themselves. A Credit Put Option can also help increase sales as competitors selling without it are forced to lower their credit terms with the client, providing a considerable advantage to the supplier using Credit Put Options over its competition.

Have a question about credit put options? Feel free to call us at 1-888-642-4422 or contact us directly by using the form to the right.

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Accounts Receivable Credit Put Options

When credit insurance coverage is not available to cover a publicly traded entity (and some privately held companies too), an accounts receivable credit put option may be available to protect a supplier from customer bankruptcy. A credit put option is designed to pay 100% of the bankruptcy loss without any deductibles or co-insurance. The accounts receivable put option is 100% non canceable and can be purchased on either 6 or 12 month terms.

While this form of coverage is more expensive than credit insurance, it provides a huge safety gap for suppliers extending credit to a publicly or privately held company when other credit insurance alternatives do not exist for the buyer.

While many traditional credit insurance companies refuse to take on the risk of certain major retailers, we have the ability to execute contracts  immediately without delay. Some major retailers that 100% bankruptcy coverage is available on are:  Burlington Coat Factory, Rite Aid, Toys “R” Us, Sears, Kmart, Blockbuster, Office Depot, Office Max, Bon Ton, Borders, Dollar General, Claire’s, Michaels Stores, AC Moore, Staples, Overstock, Best Buy, XM Sirius, HH Gregg, Saks, Neiman Marcus, Dillard’s, JC Penney, Charming Shoppes, Macy’s, Limited, Duane Reade, Home Shopping Network, Stein Mart, Pier 1, Tuesday Morning, Party City, Pacific Sunwear of California, Sprint Nextel, Eastman Kodak. Please note this list is not exhaustive. If your customer is not mentioned here, please contact us with the name of the account, address, and credit limit you are seeking for an immediate quote for 100% coverage.

Have a question about accounts receivable put options? We can help! Feel free to email us using the form to the right or call 1-888-644-4422.

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Credit Put Options: Latest Company Coverage

We are actively writing credit put options on many companies not currently qualified for credit insurance.

Please contact us with interest in credit on any of the following companies:

Automotive

American Axle, Arvin Meritor, Dana, Delphi, Dura, Federal-Mogul, Ford, Lear, GM, Pep Boys, Visteon

Plastics/Packaging/Chemicals

Chemtura, Consolidated Container, Constar, Foamex, Graham Packaging, Lyondell, Basell, Equistar, Plastipak, Pliant, Portola, Propex, Solo Cup, Solutia, Tekni-Plex

Print/Paper

AbitibiBowater, Fraser Papers, Idearc, Lyondell, Basell, Equistar, McClatchy, RH Donnelley, Smurfit-Stone

Retail/Consumer Products

AC Moore, ACCO Brands, Best Buy, Blockbuster (US or Canada), Bon Ton, Brick Group, Borders, Burlington Coat Factory, Charming Shoppes, Claire’s, Dillard’s, Dollar General, Duane Reade, Eastman Kodak, Entertainment One, Gander Mountain, HD Supply, HH Gregg, Home Shopping Network, JC Penney, Limited, Liz Clairborne, Macy’s, Michaels Stores, Neiman Marcus, Office Depot, OfficeMax, Overstock, Pacific Sunwear of California, Party City, Pier 1, Rite Aid, Saks, Sears and/or Kmart, Sears Canada, Spectrum Brands, Sprint Nextel, Staples, Stein Mart, Toys R Us (US or Canada), Tuesday Morning, XM Sirius

This is not an exclusive list. Be sure to contact us with your inquiry.

Have a question about credit put options? We can help. Feel free to email us using the form to the right or call 1-888-644-4422

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