The bet rests on a form of protection known as a vendor put option that thrives in times of economic stress. Such deals, which often involve big players like JPMorgan Chase & Co., are on the rise. They can be lucrative for fund managers, who get paid to act as a backstop in case a supplier’s customers go bankrupt.
The puts work like this: A supplier grows concerned its client might not stump up for goods and services after it buys them. To protect its accounts receivable, the supplier enters into a contract of up to a year with an investor, which collects a fee upfront and agrees to purchase the receivables claims if the company collapses.
Credit Suisse Group AG and Goldman Sachs Group Inc. have been involved in the vendor put market in the past, but currently JPMorgan is the only big bank with a significant presence, according to people familiar with the business. Distressed-investment firm Avenue Capital Group notched a profitable trade in 2018 and early 2019 when Tesla Inc.’s bonds were under pressure. Avenue sold puts to a company supplying body panels to the electric-vehicle maker, a person familiar with the matter said. Avenue co-founder Marc Lasry lauded the trade at the time, saying there was no reason to fear for Tesla’s prospects.
Vendor puts were created in the 1990s and dwell in a niche corner of the credit market. Popular through the 2008-2009 financial crisis, they wane during periods of economic growth when suppliers are broadly confident their customers will pay. The deals are private, but participants estimate that puts protect receivables tied to payments for hundreds of millions of dollars.
René Canezin, managing partner of Evolution Credit Partners, which is backed by Harvard University’s endowment, said selling puts is attractive because the firm gets to contribute to the real economy, as the supplier is “worried about his business profile; he needs to ship next month.”
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'Payment protection' You mean like credit default swaps or collateralized debt obligations? Our economy is phony. It's going to big bank it's way into the incineration of the world economy and the death of hundreds of millions. Justice will be trailing behind for the corrupt.
“Bolted in with a lock of a hundred keys which can never be unlocked without the concurrence of every key”. Abraham Lincoln DONALD WHAT YOU FAIL TO UNDERSTAND IS THAT RACISM WILL NOT END UNTIL EVERY KEY HAS BEEN USED TO UNLOCK TRUE FREEDOM!
Good Morning Mr. President Today’s US COVID19 Deaths is 231,045 You can ignore the DAILY Moms, Dads & Kids Body Counts caused by YOUR INCOMPETENCE in directing the world’s most powerful Government’s Crisis Response! Sadly they are gone & can no longer speak out... However WE CAN
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