More NewsBusiness Risk Key to Predicting Cash Flow Forecasting in Corporate Securitizations

Business Risk Key to Predicting Cash Flow Forecasting in Corporate Securitizations

In order to accurately predict cash flows in corporate securitizations, firms must focus on business risk, according to a report issued by Standard & Poor’s. The report identifies key determinants of business risk, and spells out how they influence the proportion of senior to subordinated debt in a structure, the rating levels of individual debt tranches, the leverage a transaction can absorb, and the level of structural credit enhancements needed. ‘Corporate securitizations are unique in that they can include substantial parts of a company’s business, or even its entire operations, and as a result the level of business risk can strongly influence the predictability of cash flows,’ said Blaise Ganguin, managing director in Standard & Poor’s European Corporate Ratings group and one of the authors of the report. All else being equal, the more sustainable and predictable the underlying cash flows in a corporate securitization, the lower the risk of default over time. Structural features such as cash reserves, liquidity facilities, and bankruptcy remoteness may mitigate the risk of short-term cash flow interruptions.

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