Due to the current economic situation in Brazil, companies - motivated by the expensive credit or even lack of credit - are increasingly seeking alternatives to improve their cash flows. One of these alternatives may be the securitization of receivables, a relatively new process in the country, but which already has a very expressive market.
Although it is growing practice, we see that the securitization of receivables is still being used by a few companies – generally those in the financial sector. Through this process, financial institutions primarily seek to mitigate the risk of their portfolios by adjusting their balance sheets according to the Basel AML index, lowering the doubtful receivables – the so-called write-off – and making them deductible from income tax and social contribution.
In addition, the practice can still lead to a reduction in efforts to collect delinquent credits, which are often costly and cause the company to diverge from the focus on the business.
Faced with the series of advantages that securitization of receivables can provide, it is the entities that generally need credit and improvements in cash flow, and do not have permanent financial and fiscal planning structures, the ones who should prepare for the use of such an alternative through the assignment of their receivables.
However, preparing for the assignment of credits requires companies to be aware of its portfolios for better pricing. Also, the company must promote accounting, tax and technological adequacy (for large volumes) before trading its assets. All companies, irrespective of size and structure, should have the opportunity to cheapen their financial operations, creating structures to participate in this segment.
On the other side are the investors who, in addition to paying their capital with rates compatible with the business risk, require better performance in the costs of their structures. Traditionally, in Brazil, the Credit Rights Investment Funds (FIDCs) have been used as vehicles for this operation. This type of fund features taxation only on the amortization of quotas.
Investors, however, rarely consider the alternative of using a securitization company - except in real estate and agribusiness, whose debt securities, Real Estate Receivables Certificates (CRI) and Agribusiness Receivables Certificates (CRA) are already mature. This is because securitization companies, according to the tax legislation, are subject to all direct and indirect taxes. Yet, also according to the law, it is possible to deduct interest from these taxes.
If the entity, when planning its receivables, aligns the interest on the securitized portfolios in its assets to the interest on the debt securities issued by it in its liabilities, such interest may be deducted from all taxes, making the alternative of the securitization company very attractive from the taxes standpoint. Debentures, which remunerate investors, are an example of this type of debt security to which this legislation applies.
Another aspect is the fact that such an entity may be isolated from the investor through shareholders without ultimate beneficiary owners. This makes the structure cheaper and more efficient than the FIDC. As demanded by the regulatory agency, the Fund should meet a number of requirements.
In general, these requirements make it more expensive than the securitization company, whose administration costs do not vary according to the size of the operation – which generally occurs with the FIDC.
A good option for all parties
Securitization is a segment that can help sellers and buyers of receivables to achieve their different goals and both gain from the process. The practice can be beneficial to all parties involved by improving cash flow on one side, while mitigating risks and promoting tax gains on the other.
However, this requires excellence when planning the operation. This can be obtained with the support of specialized, experienced and independent consultants. TMF Group is prepared to help clients reach advantageous agreements. Please contact us to learn more about using securitization of receivables and how it can optimize your company's cash flow.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.