Whole Business Securitization in Emerging Markets

Whole business securitization, a transaction structure developed in England, has been used in Malaysia and is being considered for use in Hong Kong and Singapore. How does the structure add value? The answer is not obvious. Whole business securitization is, as the name implies, securitization of the whole business. Why are the structuring expenditures over and above those that would be incurred in a simpler debt and equity structure worthwhile? How does the firm become more valuable when it is placed into a securitization structure? In a typical securitization, a pool of like receivables is securitized. There is at least the promise of economies of appraisal and management. Explaining why placing a whole business—not only the firm’s receivables, but also its plant, property and equipment, intellectual property, and all of its other assets—into a securitization structure adds value is, at first blush, a daunting challenge. In this essay, I propose an explanation. Whole business securitization adds value by minimizing bankruptcy costs. A group of creditors provides the firm’s entire debt funding; the group agrees, at the time the financing is provided, on their respective rights and obliga-