Securitization of future income is an instrument used for the first time by the Liceo Frances on El Salvador’s Stock Exchange.
The organization placed its bonds on the market and raised capital to expand its educational facilities.
This afforded them lower financial costs than would have been accrued had they opted for a bank credit line.
One of the main advantages of this financial model is that it does not rely on mortgage securities, so it does not compromise the assets of the institution or company that is opting for securitization. The figure is calculated using future cash flows to be generated by the investment (in this case student enrollment).
In an article on Elsalvador.com, the president of the Liceo Frances’ board of directors, Miguel Daura, said that "despite the fact that our finances were handled very well, we didn’t get the expected response from the financial system. Banks just said that they regretted being unable to meet our expectations, because they couldn’t offer loans to educational institutions", he said.
This securitization model "allowed us" to evaluate and get a loan with lower financing costs than traditional banks, over an acceptable period of ten years with an annual interest rate which will move from a low of 6% up to a maximum of 7%. "
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In the absence of state resources for public infrastructure projects, securitization is an alternative for funding.
El Salvador is in a second phase of securitization, where the focus is on generating assets that can be securitized, and future market opportunities are investment opportunities from financial assets, said the expert Jose Miguel Valencia.
The Mega Plaza Mall in Sonsonate, El Salvador, was financed through the issuance of securities that will be paid with future cash flows generated by the rental of stores.
"... last year the city turned to the Stock Exchange of El Salvador (BVES) to securitize $12.4 million at 6% interest, whereas if they had taken out a bank loan the rate they would have paid would be around 11%", said Roberto Aquino Mayor of Sonsonate, according to an article in Elsalvador.com."
Hencorp Valores, set up in Miami with Salvadoran capital, is to become the first company in El Salvador to offer securitization of mortgage and debt portfolios.
Hencorp is the first company to be approved by the market regulator to handle business under a Securitization Law that came into force last November.
These stock market instruments allow for monetary resources to be obtained immediately, guaranteeing future cash flows for the projects implemented with the credit acquired.
In an article in Elsalvador.com the president of the Stock Exchange of El Salvador (BVES), Rolando Duarte, "says that securitization has been booming in recent years because it is an efficient mechanism, which has become an additional source of financing for companies and institutions. "