Why is is that securitized off balance sheet receivables being consolidated increases assets and liabilities? I would think it would increase assets and equity, you have a receivable that’s an asset and it is valuable to the equity holders. What is the offsetting liability account?
Its basically just a loan. Cash Up, Liabilities Up
ok, then, by that logic, when consolidating the liability would DISAPPEAR not increase… securitisation = cash up, liability up, receivable goes away, equity for receivable goes away. Id think the opposite would be true Consolidate, AR comes back, cash down, liability down, equity up for the recievable
rolo550 Wrote: ------------------------------------------------------- > ok, then, by that logic, when consolidating the > liability would DISAPPEAR not increase… > > securitisation = cash up, liability up, receivable > goes away, equity for receivable goes away. > > > Id think the opposite would be true > > > Consolidate, AR comes back, cash down, liability > down, equity up for the recievable If securitization treated as as ale: Cash up, A/R down If securitization treated as a loan: Cash up, liabilities up, A/R same
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Yeah Can somebody step by step both transactions, im pretty confused too…
You’ve effectively sold the receivables, so your receivables asset goes down, but cash goes up. You’re back where you started, but without the hassle (and balance sheet issues) of chasing up payments. If an analyst considers that the whole business was just an accounting trick, that the company hasn’t really off-loaded its obligations - in other words, if the investors in the SPE can turn to the originator when the cash collection goes wrong…then he might want to bring the receivables back on the books via consolidation so that the ratios are more reflective of economic reality. Remember, that cash didn’t come from nowhere. It came from investors in the SPE lending the SPE money against its receivables (which it in turn paid the originator or sponsor for). So, the SPE is assets and liabilities - receivables and obligations to the new lenders. Consolidation therefore means that both (presumably equivalent) Assets and Liabilities come back onto the originator’s books. It will look like the originator kept its assets and borrowed against them. Which is essentially what they did (assuming there’s recourse).
Aaaaaaaaaaaaahhhh… nice so there was no liability to begin with, it became one because the liability was created via the securitization, because they can n longer just exchange the receivables for cash again, now they owe on them.
so after seel AR, asset remain the same, liab goes up and equity goes down ? rolo550 Wrote: ------------------------------------------------------- > Aaaaaaaaaaaaahhhh… > > nice so there was no liability to begin with, it > became one because the liability was created via > the securitization, because they can n longer just > exchange the receivables for cash again, now they > owe on them.
I thought that these had to be on your balance sheet, so that the receivables would still be there…mad confused now.
Securitize asset: Cash flows in from sale, AR evaporates and cash takes its place no change in equity Consolidate asset: Now you owe the people who you securitized it to Liability created, cash goes away, AR returns.
Wait, you still got the cash, so cash doesn’t go away.
rolo550 Wrote: ------------------------------------------------------- > Securitize asset: > > Cash flows in from sale, AR evaporates and cash > takes its place no change in equity > > Consolidate asset: > > Now you owe the people who you securitized it to > > Liability created, cash goes away, AR returns. your latter wouldn’t balance then… After consolidation: Liability up, Asset up (AR returns); cash left the same
lol nevermind, i see you corrected yourself