Private and corporate Lebanese investors showed faith in future domestic demand for cars by underwriting a new $15 million securitization deal for Rasamny Younis Motor Company (Rymco), the company announced this week.
The deal, in conjunction with BankMed Group and its subsidiaries MedInvestment Bank and SaudiMed Investment Co, gives Rymco access to off-balance-sheet funding. An additional innovative aspect is the fact that the company this time did not securitize its receivables, as it and other Lebanese automotive dealers have in the past, but rather securitized part of its new car inventory.
Flanked by two pieces of inventory in the company’s showroom – a white $80,000 SUV and a silver $80,000 convertible, both from the same Japanese luxury marque – Rymco and BankMed Group officials told a handful of business and automotive journalists in a March 5 press conference that the deal would help the company grow.
“Inventory securitization for us is a new way of purchasing cars from suppliers, whether Nissan or Infinity. This is not only for cash flow purposes but also for financial gains because we have gotten some tax benefits out of it,” said Rymco Chairman and CEO Fayez Rasamny. The benefits for the company also include diversification of its funding sources and access to a new investor base, he added.
Securitization is a method to transfer risk, such as credit risk, from an originator to an investor and provide the originator of the securitized asset with improved financial liquidity. The typical structure of a securitization deal involves a two-step process that entails establishment of an issuing agent company often called a ‘special purpose vehicle’; meaning the entire affair is rather complex.
Investors had generally responded well to the new securitization product, “because the transaction was structured in a way that gives investors a lot of comfort,” said Mohamad Ali Beyhum, the executive general manager of BankMed and MedInvestment Bank. “The yield is very attractive and the riskiness is pretty low, so as a package it makes sense for local investors.”
He added that the investors in the transaction were all Lebanon-based as international investors would be likely to require such an instrument to be assessed by a ratings agency. “So we consciously decided that the investors should be local,” Beyhum said.
The first decision by Rymco to tap into securitization was taken several years ago and the company has used the financing tool since 2009 in three or four rounds of securitizing receivables through deals structured by Bemo Securitization, a unit of Beirut-headquartered boutique Banque Bemo.
The new inventory securitization deal, dubbed Rymco Sec 1, took two years to conclude from start to finish, according to Abdallah Nassif, head of structured finance at SaudiMed Investment Co. The $15 million paper, which offers investors a return of 7 percent, can translate into total financing volume of $250 million for Rymco over its four-year lifespan. Nassif explained, “During this period investors receive only interest and we use the principal to purchase additional assets through a finance subsidiary that we have created. The number [$250 million] is based on assumptions related to historical turnover of the inventory, which adds up to [about that amount] over the four-year replenishment period of the transaction.”