It is the 2018 quote by Lex Greensill himself that sums it all up.
“The structure is the same whether it’s a seven-day trade receivable or a 12-year aeroplane lease cash flow or indeed a payment 25 years into the future for hydroelectric power. It uses a combination of capital plus risk mitigants—largely insurance—to deliver to our investors a product that allows us to unlock working capital for our clients so they can put it to work.” (Source: Greensill)
Since 2015 Greensill started to deviate from traditional short term reversed factoring or payable financing for large creditworthy buyers. It was not growing fast enough. The rewards were not strong enough. The profits were not there. So it entered the arena of structured finance. Long term structure finance. With insurance wrapping and thus structure risk. For clients with higher credit risk such as Gupta or Norwegian Air. It became about powerplants, airplanes, electrics cars, and so on. Supported by lesser known insurance companies such as IAL. Risk taking is of course very lucrative as long as the structures hold and the market does not turn against you. But it was not meant to be.
It is very unfortunate though that GAM and Credit Suisse allowed Greensill to mix such structured assets with traditional supply chain finance in their funds. That should not have happened. Consequentially, clients such as the UK government’s National Health Service came under stress.
Let’s be clear, traditional supply chain finance or reversed factoring is nothing more than short term funding of supplier’s invoices that have been confirmed by large creditworthy buyers. Not sexy. Not complicated. Not risky.
It would not be surprising if we will ultimately come to learn in the expected sale of the Greensill assets, reportedly to Apollo, that less than 50% of the portfolio is traditional SCF. The actual value of the other 50% is the big unknown. And in the spirit of Greensill, these structured assets could be literally about anything.
But if one thing abundantly clear it is that the collapse of Greensill has nothing to do with traditional Supply Chain Finance.
This is the first of a short series of articles based on an ongoing market survey, interviews, and the many news articles. Share your views/experiences as well via this link.