Receivable Put FAQs

The Receivable Put is a relatively new type of credit protection that enables trade creditors to hedge bankruptcy risk on uninsurable debtors. In exchange for paying premium, the creditor receives the right (but not the obligation) to "put" or sell receivables to the Receivable Put underwriter at a pre-determined price upon the bankruptcy of a specific debtor.

Receivable Put protection is available on virtually any public U.S. debtor, including those most likely to file for Chapter 11 bankruptcy.

Receivable Puts cover bankruptcy risk on a very common type of receivable known as a "trade receivable." Trade receivables are debts arising from the sale of goods or services from one business to another.

• Hedge distressed debtors - Receivable Puts give you bankruptcy protection where you need it most - on highly distressed, uninsurable debtors. Receivable Puts are available on virtually any public U.S. debtor, including those most likely to file for Chapter 11 bankruptcy.
• Turn risk into opportunity
• Safely increase sales to distressed customers
• Raise your credit limits
• Offer longer terms of sale
• Capture market share
• Keep your sales reps happy
• Maintain a good relationship with your distressed customers
• Lock in your recovery rate before Chapter 11 hits
• Enjoy non-cancelable protection - Receivable puts are reliable. The underwriter's commitment under the receivable put contract is irrevocable. The underwriter cannot cut and run simply because the credit risk has deteriorated. Moreover, Receivable Put contracts do not contain "self-canceling" cease shipment clauses.
• Reduce hedging costs - Receivable Puts are cost-efficient because you only pay for what you need. You can hedge bankruptcy risk on a single distressed debtor without paying for protection on your entire portfolio.
• Shorten your contract period - Receivable Put contracts can be as short as 3 months. There is no requirement to sign a 1-year contract.
• Reduce your paperwork - Receivable Puts require less administration then competing credit protection products. Under most Receivable Put contracts, you need not report sales, past dues or probable losses.
• Avoid basis risk - Receivable Puts hedge trade credit risk more effectively than credit default swaps (CDS). CDS are designed for bank loans, not trade receivables. Under the Receivable Put, the reference asset (trade receivables) matches the asset being hedged (trade receivables).

Receivable Puts are designed to hedge credit risk on distressed debtors, most of which are considered uninsurable. Credit Insurance is better suited to protect against unexpected losses on investment grade debtors (i.e., large public companies rated "BBB" or better). You will find that there is some overlap between these two credit protection products.

The market for Receivable Put protection is NOT regulated by the SEC or other government agencies. Receivable Puts are instead governed by general legal principles such as contract law.

Our mission at T-REX is simple: To get you the lowest available pricing for your Receivable Put protection.

• Competitive bidding - Bidders compete head-to-head for your transaction in real-time
• Large bidder pool - We market your claim to a large pool of Receivable Put underwriters
• Free - Post your auction at no charge
• No obligation - You choose the winning bidder or none at all
• Anonymous - Your company name is hidden from the general public

It's easy. Click Post Auction and enter the required information. We will contact you shortly thereafter to confirm your auction listing. T-REX membership is NOT required to post your auction.

It's FREE. You do NOT pay any listing fees when posting your auction. The winning bidder of your auction pays T-REX a commission fee if your auction transaction closes.

No. You do NOT need to become a T-REX member to post an auction.

Yes, with respect to the general public. Neither your company name or contact information is displayed on your public auction listing. We only disclose such information to T-REX-approved bidders.

T-REX markets your Receivable Put auction to a large pool of underwriters, including well-known investment banks and hedge funds. These underwriters compete head-to-head for your transaction in real-time, ensuring that you receive the lowest available price in the Receivable Put marketplace.

No. T-REX auctions are non-binding. The lowest bidder does NOT automatically win your auction. You select the winning bidder based on your own criteria (price, reputation, relationship, etc.). You can award the auction to any one of your bidders or none at all if you are dissatisfied with the bidding results.

Trade creditors purchase Receivable Put protection from investment banks and hedge funds. The Receivable Put enables creditors to lock into a recovery rate (known as the strike price) on a distressed debtor before the debtor files for bankruptcy. The creditor has the option to put (sell) receivables owing from that debtor to the Receivable Put underwriter at the designated strike price provided that the bankruptcy occurs before the Receivable Put expires. Here is some common Receivable Put jargon:

• Holder/Buyer - The trade creditor buying the protection
  
• Underwriter/Seller - The investment bank or hedge fund selling the protection (i.e., the party taking bankruptcy risk on the Debtor).
• Debtor - The customer/obligor owing the receivables
• Protection Amount (sometimes called the "Notional Amount") - The maximum amount of receivables covered under the Receivable Put
  
• Credit Event - The credit-related event that must occur before the creditor can exercise its right to put (sell) the receivables under the Receivable Put. Most contracts limit the Credit Event definition to Chapter 11 or Chapter 7 bankruptcy filing.
• Strike Price - Price at which the trade creditor has the right to put (sell) the receivables to the underwriter. The strike price is usually expressed as a % of the receivables' face value.
• Expiration Date - The date that the Receivable Put expires. The Debtor must file for bankruptcy before the Expiration Date in order for the trade creditor to exercise the Receivable Put.
• Premium - The fees paid by the trade creditor in exchange for the right to put (sell) the receivables to the underwriter.

Premium is quoted as a monthly percentage (%) of the protection amount. For example, assume that you post an auction requesting $1,000,000 in coverage on a particular Debtor and receive a bid of 0.50%. Your annual premium would be $60,000 ($1,000,000 x 0.50% x 12 months).

When pricing Receivable Puts, underwriters usually focus on the following factors:

• Debtor's financial strength;
• Debtor's industry;
• Ability to "short" Debtor's stock or bonds;
• Length of protection period; and
• Strike Price.

Typically $1 million.

Here is the normal range of terms:

• Reference Debtor: a specified public U.S. company
• Protection Amount: minimum of $1 million
• Credit Event: Chapter 11 or Chapter 7 bankruptcy filing
• Strike Price: 70% - 100%
• Protection Period: 3 months - 2 years
• First Loss Deductible: none
• Non-Cancelable Coverage: Yes
• Premium Rate: 0.05% - 3.00% per month
• Payment of Premium: up-front or quarterly installments
• Sales & Past Due Reporting: none
• Payment Date: within 30 days of Debtor's bankruptcy

No. Like credit insurance, Receivable Puts do NOT pay out on receivables which are subject to dispute or setoff.

No. The underwriter's commitment under the Receivable Put contract is irrevocable. The underwriter cannot cut and run simply because the credit risk has deteriorated. In addition, most Receivable Put contracts do not contain any "self-canceling" cease shipment clauses.

No.

Typically within 30 days of the Debtor's bankruptcy. Check the underwriter's contract for details.

After your Receivable Put auction closes, you have an important choice to make: award the auction to any one of your bidders or none at all if you are dissatisfied with the bidding results. If you select a winning bidder, T-REX provides you with the contact details for that bidder and vice versa. The two of you are on your own at this point. You can close the contemplated transaction or simply walk away if you cannot agree on contract terms. T-REX is not a party to your transaction.

The "Receivable Put Agreement" is the legal contract used to document the terms and conditions of the put. You can use the underwriter's boilerplate version of this agreement or try to negotiate customized terms. T-REX is not a party to your contract.

No. T-REX provides the venue and technology for its users to post and bid on internet auctions. T-REX is NOT your broker or agent nor does it represent you in any Receivable Put transaction.