PROVIDENCE FINANCIAL INVESTMENTS INC.
HIGH YIELD FIXED RETURNS
Providence
F I N A N C I A L
Providence Financial Affiliates
United States / Caribbean
Providence Financial is a Delaware based company specializing in principal protected returns.
The principals of Providence Financial own the Providence Companies Group, a diversified global
commercial group of companies with over 30 years of experience in financial services, receivable
financing, trade in Brazil, China and other global emerging markets. The group has offices in Hong
Kong, Taipei, Shanghai, Suzhou, Singapore, Vancouver, Seattle, Dallas, Minneapolis, Miami, Cayman
Islands, London, Guernsey, Istanbul, Dubai, Panama, Puerto Rico, Sao Paulo, Santarem, Porto Allegre,
Manaus, Rio Branco, Belo Horizonte and Sertaozinho.
Objectives
The portfolio strategy is to generate attractive, uncorrelated, fixed absolute returns from participating in the receivable financing of small and medium sized businesses (SME) in Brazil. For that purpose, Providence Companies Group has 2 Brazilian subsidiaries, Providence Fomento Mercantil, Investimentos e Participacoes, Ltda and BPA Fomento Mercantil, Investimentos e Participacoes, Ltda, to purchase such receivables in the open and longstanding domestic Brazilian receivable financing market.
Legal and Protected Company
Providence Financial Investments Inc., is a protected company registered in Delaware under registration number 4658051. A protected company is a single legal entity, which has the ability to issue notes as security. These assets are protected under legal contract.
Charges
There are no fixed charges to clients.
About Providence
3 Minneapolis Vancouver Seattle Dallas Puerto Rico Miami London Guernsey Istanbul Dubai Singapore Hong Kong Taipei Shanghai Cayman Islands Santarem Belo Horizonte Panama City Manaus Rio BrancoSertaozinho Sao Paulo
Porto Alegre
Operating Entities
75
About Receivable Financing
Receivable financing is universally accepted as vital to the financial needs of businesses. This specialized type of financing has the support of government bodies and central banks throughout the world.
Globally, it has become a common and growing source of financing for large corporations and SMEs. This type of financing is used extensively in developed and developing countries around the world, it has become an important way for businesses to maintain cash flows required for current operations and future growth.
Many firms find it difficult to finance their production cycles, since after goods are delivered most buyers pay at a later date. Therefore, receivable financing provides SMEs with valuable working capital.
Data Source:
Leora Klapper. “The Role of Factoring for Financing Small and Medium Enterprises.” The World Bank.
Receivable Financing is a Global Practice
Case Studies: How Receivable Financing Helps Businesses
HARLEY-DAVIDSON MOTORCYCLES
Wisconsin
Harley-Davidson has been selling world famous motorcycles since 1903. Based in Milwaukee, it is one of the largest motorcycle companies in the world, employing over 6,000 people. Harley-Davidson has two main businesses: they sell their motorcycles through their dealer networks and, at the same time, provide loans for people to buy them.
Harley-Davidson Financial Services is the financial arm of the company. During 2004, 2003 and 2002, Harley-Davidson sold USD$1.9 billion, USD$1.7 billion, and USD$1.3 billion respectively, of new inventory receivables and consumer retail loans. They serviced a total of USD$3.1 billion and USD$2.6 billion of securitized loans in 2004 and 2003. The company was financially healthy because they could monetize the receivables by using the receivables
as collateral. Basically, they sold their receivables for cash liquidity.
In 2008 and 2009, Harley-Davidson’s revenue declined drastically. They could no longer fund everyone who wanted to buy a Harley-Davidson motorcycle. In 2008, the company had approximately USD$2.4 billion of receivables they were unable to sell. That greatly affected the operating income and greatly impacted the financial and economic health of the company. This illustrates the power of cash flow generated by selling receivables to maintain a growing, stable business. Today, Harley-Davidson is on the path to recovery. Utilizing receivable financing helps increase operating income thus providing much need liquidity to loan more money out to new clients who want to buy a Harley-Davidson product.
Total Receivable Financing Volume by Country (in Millions of USD)
Argentina 804 Guatemala 301 Portugal 30,062 Australia 64,984 Hong Kong 38,441 Romania 3,825 Austria 14,369 Hungary 3,506 Russia 46,081 Belgium 55,481 India 4,782 Singapore 11,358 Brazil 57,151 Ireland 26,142 South Africa 28,005
Canada 9,301 Israel 1,863 Spain 162,487
Chile 31,440 Italy 238,260 Sweden 43,425
China 450,324 Japan 127,245 Switzerland 3,930
Colombia 5,976 Korea 10,480 Taiwan 91,700
Croatia 2,972 Luxembourg 392 Thailand 5,684
Cyprus 4,389 Malaysia 2,334 Turkey 41,530
Czech Rep. 6,807 Mexico 34,230 Ukraine 1,615 Denmark 11,528 Netherlands 65,500 U.A.E. 3,799 El Salvador 393 New Zealand 786 United Kingdom 381,472 Finland 22,270 Norway 23,731 United States 101,581
France 244,307 Panama 1,116 Vietnam 80
Germany 206,220 Peru 3,026
Greece 16,717 Poland 32,108 TOTAL
Case Studies: How Receivable Financing Helps Businesses
PITNEY BOWES
Connecticut
Pitney Bowes was formed on April 20, 1920 and is one of the 87 existing firms that have been members of the S&P 500 since its creation in 1957. Based in Stamford, Connecticut, Pitney Bowes became well known for their postage stamp machines, which many Fortune 500 companies have used for decades.
With 28,000 employees worldwide, Pitney Bowes provides technology for small, mid-size and large firms that help them connect with customers to build loyalty and revenue growth. Their core business includes direct mail, transactional mail, call center communications and digital channel messaging for the Internet, email and mobile applications.
Selling its account receivables has been a standard form of managing cash flow and financing for Pitney Bowes. Historically, the amount of receivables it sells contributes to the increase in total revenue. The company uses the net proceeds for general corporate purposes, which includes debt financing and debt reduction.
Working with receivable financing firms has freed up large amounts of cash to expand and remain competitive. Free cash in 2013 and 2012 was USD$769 million and USD$634 million, respectively.
TARGET CORPORATION
Minnesota
Founded in 1902 and headquartered in Minneapolis, Minnesota, Target Corporation is the second largest discount retailer in the United States. In 2013, the company was ranked 36th on the Fortune 500 list of companies and is a component of the S&P 500 index. Target has 1,778 stores with 361,000 employees in the United States.
Target has regularly financed its receivables in order to reduce debt and to accomplish expansion goals of the company. In 2008, Target sold its credit card receivables to JP Morgan Chase for USD$3.6 billion, which represented 47% of Target’s outstanding receivables at the time. This transaction provided enough cash to fund construction of new stores, to fund capital investments and to continue its share repurchase program.
Target CEO Gregg Steinhafel said he has committed to selling the receivables and hired advisers to sell its credit card receivables. The company recently completed a sale of its entire consumer credit card portfolio to TD Bank Group for USD$5.7 billion. Target reported a pre-tax profit of USD$350 million to USD$450 million on the sale. The company will use 90% of the profits of this transaction to reduce debt, while the remainder would be used to buy back shares.
Background to Receivable Financing
Receivable financing is a comprehensive financial service that includes advisory work on credit, accounting, inventory, collection and management of receivables, and working capital. The challenge many SMEs face is how to convert their creditworthy account receivables into working capital. Receivable financing provides these businesses with working capital to finance their production cycle. These receivables are from the sale of goods or services with maturities ranging from 30 to 180 days.
The underlying assets are account receivables, which are purchased by Providence at a discount, less interest and service fees. Providence assumes the credit risk associated with the receivables since this transaction is an outright purchase of the receivables rather than a collateral loan. The key point is the underwriting is based on the credit worthiness of the receivables themselves rather than the risk of the seller. This minimizes the risk for Providence since the company has direct access to the underlying assets. Providence could purchase receivables anywhere in the world but chose Brazil for two strong specific reasons: (1) Safety and (2) Return on Investment (ROI).
Receivable Financing in Brazil
Brazil has one of the world’s most advanced banking systems and the financial market is highly regulated. The strict lending laws of Brazil give receivable financing firms an advantage compared to other types of lending, such as collateral loans by fixed assets. Financial firms function within a framework that is dictated and strictly regulated by the Central Bank of Brazil and ANFAC (National Association of Societies of Receivable Financing). A strong legal structure and many safeguards have been implemented and are strictly enforced to ensure that companies, including Providence, have its investment securely in place.
Receivable financing must be based on commercial sales and is governed by Brazil’s Civil Code. It can only be conducted with businesses, and not with individuals. The most common accounts receivables are duplicatas (commercial invoices), which account for almost ninety percent of all receivable financing. Duplicatas provide direct guarantees to the underlying assets. This type of financing is a powerful tool in providing financing to SMEs.
The Brazilian government has implemented several regulations to ensure safety to financial firms. Firstly, the Central Bank takes lending default very seriously. If any individual defaults twice on a loan payment, the Central Bank will order the bank to close that individual’s account for 5 years. Their accounts plus all financial credit including credit cards and lines of credit are closed. Secondly, this closure not only affects their daily financial needs, it also prevents them from opening any other account with other banking institutions throughout the country. Thirdly, all direct business relationships are also affected and compromised. All business partners directly and indirectly associated with the default will also have their accounts frozen, until the default is addressed. These three Brazilian banking regulations are strong deterrents to credit default, as shown by the national default rate at a low average of 1.99%.
Providence is one of five companies that have direct access to the Central Bank of Brazil database, where they have the ability to conduct credit checks on the issuer. Investigating
and verifying the credit worthiness of the issuer helps Providence monitor its own risk management by reducing its credit risks. This important access to the Central Bank of Brazil helps reassure the Providence and client relationship. Each stage of due diligence mitigates potential risks and makes the entire transaction process as risk-free as possible. Working in this stringent, transparent, and industry respected framework provides a proper business environment where there is contractual and legal recourse to default. As a result, default is very low in Brazil, the world’s 6th largest economy. There are over seven hundred receivable financing firms in Brazil, which provide services to more than 65,000 SMEs. Eighty percent of these enterprises belong to the industrial sector, with a monthly turnover of around USD$10 billion. Receivable financing have more than 6,000 employees and are estimated to provide another 70,000 indirect employment opportunities. Thus, receivable financing in Brazil is an important source of financing for SMEs.
Year Default Rate
2009 2.15% 2010 1.76% 2011 1.95% 2012 2.02% 2013 2.07% Average 1.99% Data Source:
International Monetary Fund, ANFAC Brazil, Serasa Experian
Default Rate on Factoring Receivables
Default Rate
Default Rate 3.00% 2.00% 1.00% 0.00% 2009 2010 2011 2012 2013
Receivable Financing in Brazil
Receivable Financing in Brazil – Key Points
Receivable financing is an important alternative to the banking sector for the financing of small and medium enterprises. Given the difficulties of entry into the formal banking system, receivable financing companies have found an important market niche. Receivable financing companies work at a much smaller scale than banks, and in close association with their creditor. While accounts receivable are in essence future cash flows, most businesses in Brazil have a need for immediate cash to fund operations. These companies can eliminate the risk of cash flow shortages by selling part of their accounts receivables to a financial company.
Credit cards in Brazil carry the highest interest rates in the world. These fluctuate between ninety percent ( 90% ) per year for the top credit clients and up to 290% per year ( HSBC Premier ) for the average credit client. For these reasons, post-dated checks are the best way to buy on credit.
Providence has two licensed receivable financing companies in Brazil and are members of ANFAC ( Brazil’s national trade association covering all receivable financing companies in the country ). More specifically, Providence is the only foreign entity that holds such membership in Brazil due to Providence’s excellent reputation, past operating history in Brazil, and solid financial references. BPA Fomento Mercantil Investimentos e Participações, LTDA. and Providence Fomento Mercantil, Investimentos e Participacoes, Ltda are wholly owned subsidiaries of Providence Companies and operate the receivable financing business.
Due to high bank lending rates, receivable financing enables quick and, by Brazilian standards, relatively inexpensive access to financing. Whereas an annual receivable financing interest rate
of 54% for any loan product is considered unacceptably high in
many developed Western economies, in Brazil it is regarded as the cheapest form of financing available to the average borrower. Alternative sources such as bank credit based on the discounting
of invoices, personal or consumer overdraft facilities or credit cards, are much more expensive.
Data Source:
www.tradingeconomics.com, Central Bank of Brazil
9 2013 * * * * * *
* Data from Bloomberg
11
Brazil – Unlimited Potential
Growth and Safety – Key Points
The Brazilian economy enjoys a positive outlook. Emerging markets in general, and Brazil in particular, enjoyed a fast recovery from the 2008/09 global financial crisis and today, Brazil offers many exciting and stable opportunities as the most dynamic of the BRIC economies.
It has an investment grade credit rating from all major credit rating agencies following nearly 20 years of conservative economic policy and is a lender to the International Monetary Fund.
Its exports and retail sales are increasing, its inflation is under control, there is continuing and sustainable economic growth, a stable political environment, expanding lower and middle economic classes and increasing demand for consumer credit.
Foreign direct investment increased 560% between 2003 and 2011, GDP per capita is increasing and unemployment rates continue to fall.
Brazil is the second most popular global destination in terms of FDI value and fifth in terms of FDI projects. The US, Canada, China, UK, Japan, Germany, Netherlands, and Spain accounted for 77% of the FDI projects in 2012. China is emerging as a strong partner of Brazil, with the largest share of FDI and trade between the two countries.
Brazil is energy independent and in 2006 the world’s largest offshore oil reserve (Lula Oil Field) and in 2008 one of the world’s largest natural gas field (Jupiter Field) were discovered off the coast of Rio de Janeiro.
In the next three years Brazil will host both the 2014 FIFA World Cup and the 2016 Olympic Games with an anticipated combined positive contribution to the country’s economy of over USD$135 billion.
During the 1990s, the Brazilian economy did not experience the same level of robust growth as other major emerging economies like India, Russia and China. But in the last two decades Brazil has evolved to become the 6th largest economy in the world (surpassing the UK in December 2011) and has been growing at an average rate of 4% per year. Beginning shortly after the settling of global economic changes and the election of Luiz Lula Da Silva in the 2002 Brazilian presidential elections, economic growth has been consistent and supported by a development cycle of significant investments. As the largest and most populous country in South America and the fifth largest country in the world in both area and population, Brazil is well-positioned for those positive trends to continue. The nation has well-developed manufacturing, mining, agricultural and service industries, as well as a large labour pool and as a result foreign investors are pouring money into the economy. In this short time Brazil has gone from being a borrower nation to being a contributor to the International Monetary Fund and now has a large trade surplus averaging USD$30 billion. Although Brazil’s household debt-to-income ratio has been increasing recently, at around 40% it compares favourably with the advanced economies of the UK at 166%, the U.S. at 125% and Japan at 126%.
The government of Brazil is stable and the inflation rate is now low and under control as a result of policies instituted by its Central Bank. Brazil has also been able to build up significant reserves in excess of USD$350 billion which will mitigate the effects of further deterioration in global economic conditions.
In no small part, Brazil’s miraculous transformation has been due to its thriving receivable financing industry that provides the liquidity spurring the growth of Brazil’s small and medium sized businesses. Receivable financing has been a way of life in Brazil for decades, and due to severe governmental sanctions, the default rate of financed receivables in Brazil is a low average of 1.99%.
The good news about Brazil just keeps on coming. It has an increasing balance of payments surplus, continued government commitment to fiscal discipline and inflation control, increasing export volume growth, decreasing interest rates and strong foreign direct investment, all of which are expected to continue to strengthen the economy and fulfill the prophesy of Brazil being the country of the future.
13 Global economics affects everyone. The world economy is linked directly and indirectly. No matter where you live or where you invest, current economics will impact you and your investments.
Many companies still function under the old belief system that quick profits are the only driver of sustainability. In the last 5 years many companies have struggled, restructured, or simply went out of business while Providence has consistently grown at a 25 to 40% rate, year after year. Providence has always delivered value and trust in the global marketplace to all investors and business partners through 4 main philosophies:
Providence approaches project selection, investment capital and capital preservation with relentless research and due diligence. Performing extensive background research with respect to company’s management, business feasibility and financial health allows Providence to mitigate risks and focus on long-term profitable projects. This in essence brings an inherent security to the investment portfolio of business. Providence has mitigated risk and volatility by diversifying their various businesses across many industries. These industries are diversified into business consulting, financial services, manufacturing entities, and global commodity trade. Diversified industries and geographic regions helps hedge against global fluctuation and volatility.
Comprised of institutional bankers, real estate developers, attorneys, global business strategists, and financial executives Providence is properly positioned to capitalize on the collective skills of their Management Team and Associates.
Every company has ambition to grow but having a growth strategy that is congruent with the core philosophy is vital. Providence will continue to grow by following their proven formula to becoming an expert in any field:
• Focus on 1 or 2 target markets at a time and create multiple points of profit,
• Find a niche that generates higher than average returns, • Safety and Consistency beats short-term higher returns, • Invest in relationships, innovation and education,
• Have a global mindset, but take 80% of your action locally, • Create sustainable distribution channels.
Our global reach, experience and products are the perfect compliment to current and future strategy. We consistently deliver value and trust in the global marketplace to all investors and business partners.
Providence Companies – Growth Unlimited
Experienced and sophisticated investors know that it is good practice to always diversify their investments.
Many clients have found that Providence is a key component of their fixed income portfolio. Individuals have put their retirement savings and registered pensions with Providence and have enjoyed a monthly fixed income. The monthly fixed income option reduces risk and provides a predictable retirement. Both private and listed companies put their reserves with Providence. The monthly fixed income and high yield returns allow them to generate consistent revenue to fuel their own company growth.
Global traders have used Providence’s trading platform and access to commodities as a hedge to their own business. Diversifying through trade in the Emerging Markets mitigates the volatility of investing in equities.
By holding true to their 4 philosophies and growth principles, Providence Companies are poised for long-term growth in Emerging Markets worldwide.
Providence’s past performance has been impressive, in an uncertain and volatile investment environment. Their planning and involvement in Emerging Market growth industries consistently deliver high yield returns. Their team is laying the foundation for sustained, long-term yields by creating key partnerships and alliances, establishing companies in the financial sector and consistently monitoring Emerging Market opportunities.
Providence Companies –
performance yesterday, today and tomorrow.
• Provide investment safety with real high yield returns
• Always deliver consistent value
and returns to clients, associates and partners • Corporate stability and diversification
• Be the premier example of social and corporate responsibility
Every company needs to have a platform of social responsibility where business relationships and fiduciary responsibility are non-negotiated priorities. Providence only participates in business relationships that are mutually beneficial for all parties involved.
General Information
This document has been issued and approved by Providence Financial. Although information and any opinions in this document have been obtained from sources believed to be reliable, Providence Financial does not represent or warrant their accuracy, and such information may be incomplete or condensed.
Note holders should not treat the contents of this information brochure as advice relating to legal, taxation, investment, or other matters.
This publication is for private circulation and information purposes only and does not constitute a personal recommendation or investment advice or an offer to buy and sell.
Due Diligence
Business Service Providers
Administrator
Providence Fomento Mercantil, Investimentos e Participacoes, Ltda
Edificio Palladio
Rua Fidencio Ramos 223 Suite 74, Vila Olimpia, Sao Paulo, Brazil
Liberty Trust Company Ltd.
8226 Douglas Ave., Suite 520 Dallas, Texas
www.libertytrust.com
Advanta IRA Services, LLC
13191 Starkey Rd., Suite 9 Largo, Florida
www.advantaira.com
Auditors
Pricewaterhouse Coopers CI LLP
PO Box 321, Royal Bank Place, 1 Glategny Esplanade, St. Peter Port, Guernsey www.pwc.com
Bankers
Banco CitiBank S.A.
80 - Av. Paulista, 1111, 2º andar, Bairro Bela Vista,
São Paulo, Brazil www.citibank.com.br TotalBank 5782 SW 8th St., Miami, FL www.totalbank.com Manager
Providence Financial Investments
240 Crandon Blvd.,
Suite 228 Key Biscayne, Florida
www.provfinancial.com
Legal Advisors
Formoso Murias, P.A.
One Unity Square 401 SW 27th Avenue Miami, Florida, USA www.formosomurias.com
This information brochure does not constitute a general offer to the general public. Qualified individuals who want to learn more about Providence Financial contact the nearest local Providence office, or visit www.provfinancial.com
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