Breitling was keen to access fresh liquidity to smooth out its working capital cycle. But as a non-investment grade company, it could offer only limited credit arbitrage to suppliers, which weakened its negotiating power. It believed that its suppliers – especially very small players that provide specific watch parts, including to its competitors – would resist the longer payment terms associated with traditional SCF and would want to push the costs, or discount, associated with SCF back to the company.
SCF with a difference
To resolve these challenges, MUFG proposed a ‘Pay on Behalf’ short-dated SCF facility under which Breitling agrees with the bank to repay invoices when they reach maturity. MUFG distributes the payment obligations with the aim of attracting liquidity from non-relationship banks that are keen to invest in the obligations of non-investment grade corporates given the short-term nature and clear links to the company’s procurement activity. Suppliers’ payment terms are unaffected and they are not involved in the process. The lack of onboarding requirements also makes the solution easy to implement.
Targets achieved
Judges were impressed by how quickly the programme scaled and achieved Breitling’s goal of attracting new liquidity. Within three months, the bulk of MUFG’s credit limit had been exhausted. It then successfully onboarded two additional investors, one of which was a non-bank player that Breitling had not had a relationship with previously.
