Leah’s believes that the ‘reverse factoring’ financial instrument used by Abengoa to pay its suppliers and respond to the immediate needs of the business has “debt-like traits”, although it recognizes that accounting standards do not require these products to be computed within of the debt chapter.
The credit rating agency makes these considerations in a twelve-page report entitled ‘Abengoa,’ reverse factoring ‘has similar features to debt’, in which it states that, if these instruments are included, the leverage would increase between 0.5 and 0.6 points
The ‘reverse factoring’ is an instrument by which the company recognizes a payment to the suppliers whose amount the banks assume and, subsequently, the company itself pays to the entities. Unlike conventional factoring, reverse factoring arises at the initiative of the company and not the supplier.
“Analytically, ‘reverse factoring’ has had the effect of raising leverage, to the extent that it is seen as similar to debt,” says Leah’s, before considering that this technique “can be used as a short-term financial tool. for long-term needs. “
The agency also considers that these activities can become “permanent elements of the financing activities” of the companies.
“We think that if these sources of resources become unavailable to a company, this could affect the company’s short-term liquidity, especially in a time of stress, and exacerbate other problems,” he says.
Leah’s indicates that Abengoa suffered a significant contraction of the ‘working capital’ of nearly 400 million euros in the third quarter of the year, “which became one of the reasons that forced the company to request the pre-contest.”
In any case, the agency considers that the Abengoa case is not unique and warns that there is a lack of transparency on these instruments that make ‘reverse factoring’ an element “difficult to measure, since accounting standards do not always require the delivery of information about this activity ”.
Unlike the normal factoring in the reverse factoring, it is not the provider who submits the invoices to the financial institution to be financed, but it is the one that must pay them, in this case Abengoa, who initiates the process by choosing which invoices allow are advanced by the financial institution to the provider.
Being Abengoa the one that initiates the factoring process is considered to be an Abengoa liability and a risk of the company if it does not pay the bills that have been discounted.