Receivable-based finance

Receivable-based finance

Michel Jansen

Amador Malnero

Agenda

• Clondalkin’s refinancing and the added value of using receivables Michel Jansen Clondalkin

• Deep dive into receivable-based finance Amador Malnero ING

Clondalkin’s refinancing and the added

value of using receivables

Michel Jansen

CFO Clondalkin

Clondalkin Group

• Leading international producer of high value added packaging products and services

• >€ 700m revenues with strong and consistent cash flow generation

• 35 locations in 8 countries

• Market leader in secondary healthcare packaging with #1 position in North America and #3 position in Europe

• Leading positions in European flexible packaging markets

• Well diversified business portfolio and geographic footprint

Each division has a blue chip customer base

Specialist Packaging (55% of sales)

Flexible Packaging (45% of sales)

Foils, Laminates & Coatings

Engineered films

• Folding cartons, leaflets, literature, inserts and labels • Laminates of aluminium, paper and film

Setting the Scene

Issuance high yield bonds:

€170m fixed rate bonds maturing in 2014;

€413m floating rate bonds maturing in 2013 In light of the upcoming maturities of the bonds, beginning _{of strategic reflection on the refinancing. Objectives:} • Refinance existing debt

• Reduce leverage

• Reduce financing costs

Several routes are pursued with implementation beginning in 2012 and target closing before mid 2013:

• Sale of various divisions in the group both in Europe and USA • Refinancing of the senior Revolving Credit Facility

• Issuance of new debt in the markets

• Setup of off-balance sheet trade receivables securitisation transaction

2004 2007 2012 2012 - mid 2013

Clondalkin mandates ING as sole arranger for a €90m equivalent transaction

Considerations:

• Multi jurisdiction and multi currency businesses (35 sites in 8 countries selling to > 130 countries)

• Decentralized collection structure (10 different local ERP systems)

• Difficult environment to launch a Company wide Securitization project

Scope of the Project: the challenge

 Minimum funding > €60 million

 High advance rate on the receivable book (>80%)

 Funding at acceptable pricing levels

 Off Balance

 Multi jurisdictions

Sources Uses

Net Cash proceeds from disposals 135 Repayment of borrowing 585 Cash proceeds from receivable-based finance 65 Cash to balance sheet before fees 52

Term B Loans 349

Existing Cash 88

Total sources 637 Total Uses 637

• Timing:

 Within five months

 Parallel to disposal process and refinancing process

• Costs

 Set-up costs < 2.5% of maximum program amount

Clondalkin structure visualised

1. Each seller sells eligible receivables to ING on a daily basis

2. On a monthly basis ING pays the purchase price on portfolio to Clondalkin Acquisition BV (hereafter Clondalkin or Master Servicer)

3. Clondalkin, as subordinated lender pays to ING the loan sized to equal the required reserve (10-15% program)

4. The Master Servicer passes the collections on receivables sold to ING

5. In case of defaults under the receivables, Atradius as credit insurer pays 90% of each claim to ING

Purchaser

Atradius

Credit Insurer

Clondalkin Acquisition B.V.

Master Servicer / Subordinated lender)

Clondalkin OpCo 1

(Seller)

Clondalkin OpCo …

(Seller)

Clondalkin OpCo x

(Seller) 1 2 3 4 5

Securitization: an essential piece

• The Group entered into a Receivable Purchase Agreement (RPA) with ING to sell its trade receivables

• Off-balance financing facility

• App. 80% advance rate (testimony to strong book)

• Initial proceeds €65 million (May 2013)

• Maximum program amount €90 million

• All-in finance costs c. 4.6% p.a. (incl. cost of maintaining the facility)

Deep dive into receivable-based finance

Amador Malnero

Managing Director

Setting the scene

Scarcity of liquidity

Stricter regulations

Economic downturn

Economic environment pressures profitability Basel III and regulation of FI’s

are constraining capital and lending

Liquidity is scarce and banks are de-leveraging

• Working capital management has moved to the top of the agenda

• Worldwide receivable financing has increased from €1.3tr in 2007 to €2.2tr in 2013 (Europe €1.4tr¹)

• Treasurers seeking ways to unlock funds trapped in O2C and P2P

• Banks focusing more on flow and trade products

• Cash flow improvement / Working capital optimisation

• Financial ratio management

• Improve return on capital employed

• Funding diversification

• Pricing benefits

Single debtor A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R A/R Receivables Pool Non-granular portfolio TRPP Trade Receivables Purchase program Single/multiple invoice(s) ICRF

International Corporate Receivables Finance

Approach:

Granularity:

ING Solutions:

Multiple debtors

ING’s receivable-based financing solutions

Portfolio approach

Granular portfolio

Method of funding using securitisation techniques

Principles of TRPP

Structures mitigate the traditional credit risk

Structures set up in

• Granular homogeneous pool of assets

• Isolated from credit risk of the originator; transferred to ING via true sale

• Continuously refilled with new assets

• Reliance on performance of portfolio for repayment

• Insulation from or mitigation of the exposure to the originator events

• Credit enhancement typically up to AA

• Ring-fencing, true sale of the pool of receivables

• Credit enhancement by dynamic reserves

• Structural mechanisms activated by triggers or financial covenants

• In order to achieve equivalent of AA rating, analysis of:

Key principles of TRPP

Obligor 2 Obligor 3 Obligor 1 Obligor 4 Obligor … Obligor N

Simplified TRPP: portfolio structure

Portfolio of trade receivables

Purchaser

Receivables Purchase Agreement Servicing Agreement Receivables Purchase Price Collections True sale Credit Insurer (if any) Collections Receivables Products Originator* Credit Insurance Policy

Portfolio

approach with the seller selling a diversified pool of trade

receivables from multiple debtors

Key benefits of TRPP for Clondalkin

Funding

• Provides funding access to lower rated clients…

• Allows competitive pricing compared to other funding sources • Scalable to finance

trading growth • Diversification of

funding sources

Off-balance sheet treatment

• Possibility to achieve off-balance treatment

- credit insurance

- substantial transfer of risks and rewards (auditor confirmation) • Strong balance sheet

management tool - improved financial

ratios

- lower pricing grid thanks to ratios enhancement

Flexibility

• Customised

(organisation structure and objectives)

• Portfolio approach provides flexibility in terms of pool

composition

• Multiple jurisdictions and originators possible • Silent assignment: no

impact on commercial relationship with debtors

Management tool

• Encourages best business practices through due diligence of policies, procedures, systems and data, and dynamic monitoring of portfolio's performance • Centralisation or

supervision of the

servicing by the master servicer

Implementation experience from

Clondalkin’s perspective

Michel Jansen

Experience and Learnings: the funding

 the size and quality of the Accounts Receivable Book

 eligibility criteria (agreed invoices to be acquired)

 historic performance of the collections process (cash reserve rate)

• The Funding fluctuates minimally over time under influence of:

 the balance between collections and new issued invoices

 quality of the order to cash process

• Flexible structure: allows for partial implementation (bridging facility through two tier structure).

Experience and Learnings: the structure

 We have co-developed a cloud based platform for the data flow and reporting requirements

 Manage eligibility criteria

 Monitor historic performance of the collections process

• We gained significant insight in our accounts receivables through the scientific approach enforced through the securitization process.

 Develop or buy tools that help improve the performance of the order to cash process (reminder on line and dispute management system)

 Detailed insight in credit terms and its development

 Flexible structure: allows for partial implementation (bridging facility through two tier structure).

Concluding remarks

• In ING we found a partner that was willing to pioneer with us

• We reduced the quantum of debt required from the Financial Markets

• We diversified our financing structure

• The structure is flexible, resulting in permanent funding with funding levels increasing in line with growth of the underlying business

• We lowered the average financing costs compared to the alternatives available at the time

• We realized a significant Working Capital reduction

• We gained significant insight in our accounts receivables through the scientific approach enforced through the securitization process

Disclaimer

This presentation prepared by ING Bank N.V. (“ING”) is intended to provide information and to serve as a basis for discussion purposes only. While reasonable care has been taken to ensure that the information contained in this herein is fair and reasonable as at the date hereof, ING has not independently verified the information herein and accordingly makes no representation or warranty, express or implied, that the information contained herein is accurate, current, complete or correct. Any estimates in this presentation are provisional only and for indicative, preliminary and illustrative purposes only. This presentation does not constitute any valuation, appraisal or advice and there can be no guarantee that any projected results will be achieved. ING reserves the right, but does not have any obligation, to amend or change such projections or assumptions if ING deems it appropriate to do so. This presentation does not constitute an agreement or a commitment or an offer to commit to or a recommendation to enter into any transaction, or creates any obligations on the part of ING. This presentation and the information contained herein are confidential and may not be disclosed to any third party without the prior written consent of ING. ING does not accept any liability whatsoever for any loss however arising from any use of this document or its contents arising in connection herewith