Bibby strikes £1bn securitization deal to boost SME lending

Bibby Financial Services has agreed a £1billion securitization deal to help the Liverpool-based group lend to UK businesses struggling with cash flow in the economic downturn.

The small business finance provider has set up a securitization facility for its UK loans for three years under a deal led by Lloyds Bank alongside HSBC, Barclays Bank, BayernLB and with participation from funds managed by Insight Investment.

The deal, which replaces an existing securitization facility of around £700m, will bring BFS’s total funding capacity to over £1bn.

Theo Chatha, chief financial officer of Bibby Financial Services (BFS), said UK small and medium-sized businesses needed “cash flow support to help them weather the challenges associated with an economic downturn, grow and thrive” .

He added that the new securitization facility will allow the lender to increase its financing to these companies. Chatha said the cost of debt had shifted in favor of the lender, which would be passed on to its borrowers.

BFS, part of the Bibby Line group, a 215-year-old family business based in Liverpool, offers invoice and asset finance to small businesses. It operates in nine countries, although this facility only covers its UK loan portfolio.

Invoice discounting allows businesses to sell their invoices at a discount and then have BFS work to collect payment on the invoice. Asset-based financing includes hire-purchase and financial lease contracts. It also offers a factoring service where Bibby buys out the company’s debts and collects them for a fee.

Rating agencies DBRS and Moody’s have assigned AA and Aa2 ratings to the company’s new facility, respectively.

Britain’s small businesses are set to be the hardest hit by the recession as many are struggling with debt incurred to survive the pandemic at a time when demand is falling and costs are rising due to inflation.

The number of companies entering administration is already starting to rise, with business groups calling for further government support ahead of its autumn statement this week.

BFS said it wanted to use its new facility to support businesses struggling with their daily cash flow.

The loans will be transferred into a special purpose vehicle, making it possible to issue securities backed by these assets to lenders and investors. BFS is unusual in securitizing invoices receivable – a legally enforceable demand for payment by a company for goods supplied – that small businesses assign to BFS, allowing it to advance financing backed by these receivables.

The value of securitized receivables and associated advances fluctuate daily, reflecting the need for its small business clients to meet their daily working capital needs. This means that the total size of the securitization varies daily instead of being fixed.

Darcy J. Skinner