Greensill, Receivables Under Scrutiny
Last week, The Wall Street Journal wrote the article, "Credit Suisse Funds Under Review Financed Nissan, Kellogg -- and a Mogadishu Hotel Owner," which explains, "Greensill Capital, a SoftBank Group Corp.-backed financing firm, has raised billions of dollars by offering a way for investors to boost yields by helping companies manage cash flow. Greensill funds long-established companies such as cereal maker Kellogg Co. and Nissan Motor Co., but it also has a roster of lesser-known businesses that inject risk into its portfolio, according to fund documents distributed to investors. These include a private security firm that runs a hotel in Mogadishu, a coal miner that paid Greensill in stock instead of cash and several firms that got more in financing than they generated in revenue. Last week, Credit Suisse Group AG launched an internal review of four funds that the bank runs with Greensill. The funds have grown quickly and hold about $7.5 billion in assets in aggregate, up from $2 billion at the start of 2019. They invest in securities sourced from Greensill clients." The piece continues, "Credit Suisse hasn't provided details about the review, which is continuing and is looking at the funds broadly. According to people familiar with the matter, it was prompted by concerns about the multilayered role of SoftBank. As well as holding a large stake in Greensill, the Japanese conglomerate invested $500 million in the funds. The less-established names that the funds finance include several of SoftBank's Vision Fund portfolio companies, including one to whom it provided unusually long payment terms." The WSJ adds, "Greensill, run by former Citigroup Inc. banker Lex Greensill, is part of a broader industry that provides short-term funding to pay companies' suppliers, also known as supply-chain financing.... Using this financing, companies effectively borrow money to pay their bills. Greensill pays the suppliers faster than they normally would be, but at a discount to the invoiced amount. The corporate clients, known as obligors, agree to pay back Greensill later. Those promises are packed up into securities that can be sold to investors. The Credit Suisse funds, which invest in securities primarily originated by Greensill, are pitched as alternatives to other relatively liquid diversified investments, such as money-market funds, which also lend short term to companies. The main Credit Suisse Greensill fund returned 3.35% in the year to June 1, compared with 1.8% in the same period for a large money-market fund run by JPMorgan Chase & Co. Assets in three of the funds are also protected by trade credit insurance, which covers potential defaults. Credit Suisse warns investors that there is no certainty that obligors or the insurance contracts pay in full or on time, according to a fund document."
