Forfaiting

Under Forfaiting ( from the French à vendre forfaitaires, "sell in the package" ) refers to the purchase of receivables without recourse to the seller in default of the debtor ( real forfeiting). In the spurious forfeiting recourse is against it possible. However, the seller is liable in both cases for the right hand ( verity ) of the claim.

• 4.1 Economic importance
• 4.2 Sequence of forfaiting
• 4.3 Tax Benefits

• 5.1 Objection waiver
• 5.2 Local authorities' approval capability
• 5.3 Advantages and disadvantages of PPP Forfaiting

General

The seller of the receivables is called " Forfaitist ," the buyer " forfaiting ". Forfaiting Forfaiting or is a classic instrument of export financing. In addition, she has gained significant importance in the financial management of leases. For many years, forfeiting also be used in the public sector receivables against third parties, in particular as a tool to finance projects in the area of ​​Public Private Partnerships (PPP ) and Public Private Partnerships (PPP ). Forfaiting is in modern finance constructs, as used, for example, asset-backed securities (ABS ) as part of the transaction. For example, to be achieved in a so-called true sale ABS transactions, the non-recourse sale of receivables is a necessary condition.

Generally speaking, the forfaiting improves liquidity in the Forfaitisten and helps to reduce liabilities.

Legal bases

The additives used without restrictive term forfaiting has a unique normal traffic content. He identifies a specific type of financing, namely the purchase later maturing demands especially from foreign trade transactions by a bank under assumption of the credit risk. The fact that the term thereby forfeiting a waiver of subrogation of the Bank for the event is immanent, that the acquired receivables is not economically feasible, corresponding to general opinion. The literature defines the term non-recourse financing, therefore, unanimously consider buying due later expectant receivables without recourse to earlier call owner.

Legally Forfaiting is prevailing opinion is based on a contract of sale under § § 433 et seq. This fault is actually legal determination on the assumption that things are acquired, which demands not belong. Since the law of obligations is dispositive law, including claims may be the subject of a sales contract. If a claim under the forfaiting sold, then there is the available sales transaction in its assignment according to § § 398 et seq. Therefore, at the same applying to the assignment of a claim provisions of § § 398 ff BGB to be considered analogous, in particular the full transfer of rights ( § 401 BGB) and the notice of assignment ( § 409 BGB).

By the law of obligations modernization of January 2002 doubts have arisen, from which legal norm since then yields the legal validity because it is not explicitly regulated. Due to the absence of clear regulations of § 437 BGB aF yet there is no prevailing opinion as to who is liable for existing Veritätsmängel. A part of the literature is of the opinion that the failure to procuring a claim a failure to fulfill the obligation under § 433 transmission section 1 sentence 1 BGB performing, so that the legal validity still rests with the seller and this for presumed fault ( § § 280, Section 1, § 276 paragraph 1 sentence 1 BGB must answer ). Another view assumes that the purchase of receivables pursuant to § 311 para 1 BGB is effective, but illustrative of the seller pursuant to § 311a paragraph 2 BGB, if he knew the non-existence of the claim or was liable for his ignorance. In any case, to wear a receivable ensure the seller that the receivables sold and is free of third party rights. The existing legal uncertainty only by appropriate design of the Forfaitierungsverträge, such as the express warranty liability of Forfaitisten for dilution risk, to be eliminated. It can be agreed that the seller is at fault - or even regardless of fault - according to the provisions of § 311a para 2 BGB should be liable ( for damages or reimbursement of expenses ). The buyer also has a right of withdrawal in accordance with § 326 Section 5 of the Civil Code in acquiring non-existent debts.

The acceptance of a purchase contract also requires tax law that the risk of economic recoverability of the receivables (credit risk ) passes to the buyer, so far as there is no possibility of recourse; according to the rules of sales law, the seller is liable only for that is the legal existence and the future emergence ( verity ) of the receivables sold. The simulated Forfaiting is classified 488 et seq as a loan under § §.

Forfaiting as a means of export financing

Especially for medium-sized companies are factoring and forfaiting finance important because the debt finance through traditional bank loans is becoming increasingly difficult. In business, the forfeiting wins export financing is becoming increasingly important, as credit institutions due to stricter prudential regulatory framework (Basel II) is not so easily allowed to grant loans and therefore supplier credits must be included.

History

Forfaiting goes back to the Soviet Union. During Richard Nixon 's visit to Moscow in May 1972 U.S. wheat supplies for the Soviet Union were agreed. As a result, the Soviet Union also bought wheat in Europe because of a prolonged dry period. Because of the lack of foreign currency Russia did not pay immediately, but through the medium change of state Soviet foreign trade bank under aval of the Soviet state after discounting at Western European banks. In the discounting was the purchase of receivables, the bill guarantees led to a spurious forfaiting.

Expiry of forfaiting

The importer shall provide for a trade credit granted in a security ( eg in the form of a Bankavals on a promissory note or by leaving open a deferred payment letter of credit ). The exporter ( Forfaitist ) sold the receivable less interest to the forfaiter ( the exporter's bank ) and transfers the rights of the hedging instrument at this. At maturity, the forfaiter pulls the amount and has the interest included in the customer amount to be paid as profit.

Prerequisite to the demands

• Short-, medium - or long-term receivables
• Must be abstract and detached from the underlying transaction
• Debtor must be of sound credit
• Country ( seat ) of the bank of the importer considered internationally creditworthy
• Requirement must be based on hard currency denominated (eg Euros, U.S. dollars )
• Claims must be assignable
• Claims of third parties must be free of rights.

Advantages for the exporter

• Fast cash ( by selling to bank)
• Delivery of credit risk
• Full balance relief ( cash instead of receivables)
• Full debt financing ( no own funds)
• No coverage from a credit insurer required
• Extinction of the price risk at the time of the sale of receivables
• The forfaiter takes over the collection function
• Financing costs lower than other forms of financing, as the creditworthiness of the obligor usually better than that of the receivables seller.

Forfaiting as a means of leasing refinancing

Economic Importance

Forfaiting is in addition to the conventional borrowing the most important form of refinancing of leasing companies. The leasing companies thus provide liquidity for the purchase of the next lease assets, save tax and to avoid costs incurred in collecting the receivables sold.

The economic importance of non-recourse financing for leasing refinancing illustrates the FlowTex fraud. In this case, the largest financial fraud in Germany, which has led to a loss in the billions, was the forfeiting of the lease payments by leasing companies part of the snowball -like cash cycle. The assignment of future lease payments were paid to the discovery of the fraud system from the purchase price for getting new non-existing leases appliances.

Expiry of forfaiting

The lessor acquires the leased to lease it to the lessee. To fund the purchase price he sells as Forfaitist its claims for payment of the lease payments under the lease agreement to the bank as forfaiter. The bank collects the lease payments one at maturity. The purchase price for the lease installments corresponding to their present value less administrative costs and VAT.

With the purchase of lease receivables, the Bank takes over as forfaiter also the credit risk, ie the risk of inefficiency of the lessee, they must check in advance in accordance with the provisions of the German Banking Act ( KWG). The recourse in the event of insolvency of the lessee is excluded.

As security - in particular to hedge their claim from the legal validity - can the bank are usually the asset or transfer the expectant right in retention of title suppliers. For in contrast to the forfeiting of export transactions, the Leasingforfaitierung is a not yet unwound continuing obligation to reason; it is therefore possible that service disruptions still get impact on the legal existence of the receivable sold.

The assignment of the receivables sold is usually a silent assignment without disclosure to the lessee. The assignment of future lease payments is against insolvency in the bankruptcy of the Forfaitisten ( lessor ).

Tax Benefits

If also goes the credit risk on banks, such Forfaitierungsverträge apply with banks not as a permanent debt - credit agreements within the meaning of the Trade Tax Law, leasing companies pay the Forfaitierungsbeträge no permanent debt. Forfaiting so not only reduces the credit exposure of the leasing company, but also allows exempt from trade tax financing.

Forfaiting is subject to trade tax does not favor. According to § 8 No. 1a sentence 3 GewStG the computational effort during the forfeiting of outstanding contracts is added to the income from trade or business under § 7 GewStG fictitious. That as a result, increase the commercial tax base.

Forfaiting in the public sector

In the context of public-private partnership (PPP or PPP) awarded federal, state and local governments, their own businesses, or public undertakings part of their construction and renovation projects under PPP programs. To this end, a project company is established, the rent receivables, receivables from lease fees or license fees has on the public sector. The project company sells these receivables to a bank as part of a forfaiting. Credit granted to a project company is a constitutive element of a PPP structure represents the Bank acquires these claims against the project company organized under private law. At the same time, the public debt debtor shall make an explicit objection waiver.

Objection waiver

What counts is the plea waiver in particular because of bad performance, rescission, set-off, retention and other rights to refuse performance by the contracting garnishee. This objection waiver means that the bank forfaitierende of service disruptions within the contractual relationship between the municipality and the project company remains unaffected. Must also be ensured that the forfeiting carried out at least in the amount of the credit operation. Then the bank is treated as if they had entered into a credit agreement with the municipality, for the credit operation is not affected by any service disruptions within the contractual relationship between the municipality and the project company. This structure is regarded as "one of the express warranty set equal standing declaration of liability " under § 70 No. 1 b Solvency, because the municipal obligation to pay was completely detached from the underlying transaction and therefore the municipality must even pay even if it receives no more consideration of the hedged. Thus it is in this design from the perspective of banks by a Kommunalkredit.

" Forfaiting with plea waiver " are all forms of financing in which a project company wholly or partially transfers its claims under a PPP contract to the financing banks and the Contracting Authority provides certain and these demands. The essence of a forfaiting with plea waiver - which belongs to the market standard - is to replace a portion of the project risks against the lower credit risk of the public sector. There is therefore no economic risk transfer from the public rather than the private sector. Usually, only the portion of the receivables is covered with a plea waiver, which is needed to cover the debt service. Such a transaction is completed by the fact that also the claim of the Project Company shall be assigned to Schadenstragung case of early termination of the contract against the church to the bank and also omitted here the community to which you are entitled to defenses.

Local authorities' approval capability

The municipal forfaiting with plea waiver, in some municipal regulations approved by the municipal supervision, however, is considered local - legally approvable, as for the public sector which as certain non-recourse financing for investing part of a PPP project did not constitute assumption of additional risks.

• Because the public sector is also in the public self- realization in the conventional manner of Kommunalkredits the debtor.
• While in a PPP project, the public only after the construction begins with the payment of compensation, the public sector has to pay according to progress in the realization in the conventional manner already.

The municipal legal permissibility of a PPP contract, which is a similar credit transaction (about § 82 para 5 Saxon GemO ), depends in particular on the following two conditions:

• The economic viability of a PPP project in comparison to a conventional solution must be proven.
• The community also needs to be taking into account their other duties in a position to meet the long-term obligations to pay current PPP rates.

Pros and cons of PPP Forfaiting

The advantages of local forfaiting, especially viewed:

• The reduction in the financing demand and thus the discharge of the municipal budget through interest savings due to local conditions (without guarantee).
• The reduction of interest rate risk during the Forfaitierungslaufzeit, as well as fixed interest rates can be agreed for more than 10 years with the investor and thus the planning and calculation reliability can be improved.
• The defense - and objection waiver as financing security provided by the local authority will not be credited to the guarantee limit, because although it acts as a guarantee, but is not formally or legally.
• The business tax relief from the Investor by a lack of interest on permanent debt.

A complete, taking place from the outset forfaiting with waiver of defenses in case of bad performance in terms of future trades is however viewed critically.

Distinction between Factoring and Forfaiting

A forfaiting contract specifically includes certain receivables and is therefore legally qualify as a species purchase. Factoring contrast, refers to the purchase by later emerging, at the time the contract is concluded as yet unknown claims and is therefore a genus purchase. This difference is expressed if the seller meets the demand for legal validity. If a claim is not sold or is it not transferable or is afflicted with exceptions, as the seller of the receivables factoring can replace it by any other requirement, at a forfaiting, however, it is according to § 311a paragraph 2, sentence 1 BGB liable for damages. Here is a case of initial impossibility, since the species that buying a deteriorated requirement can not be replaced by a defect-free.

Fraud risk

Factoring and Forfaiting subject to the risk that the Factor Bank or the forfaiter be sold and assigned its claims, which do not exist. Although these risks include the legal validity of the receivables seller, but is ineffective when he has the purchase price proceeds received conveniently used foreign criminal intent. Spectacular fraud factoring (especially Balsam AG) have led to major damage, because these forms of funding to facilitate a sale of bogus claims. The Balsam AG had claims " simply invented to get in the way of the sale to the Procedo GmbH cash. " In 1993, the fraud was on in June 1994. FlowTex sold drills, 85% of which did not exist in the sale- leaseback method. Factor or Fortaiteur have therefore permanently ensured by appropriate control measures to ensure that there is no dilution risk for them. In particular, can be obtained from the requirement debtors balance confirmation or acknowledgment of debt.