In one of the mocks, Company A sold and securitized finance receivables in a SPE. The question asked what would be the effect of adding back the receivables on its leverage ratios. The answers shows that assets and liabilities increased by the same amount of the receivables…why would this be the case? Shouldn’t receivables only increase assets, and not liabilities?
SPE borrows from market to buy receivables. When SPE is consolidated with company A, both receivables and liability go up by equal amount.