Accounts Receivable Put Options

Summary information on A/R Put Options:

• Issued to cover large, publicly traded companies (or large private companies with audited financial statements)
  
• Issued to cover one company (not multiple companies)
  
• Issued by investment banks (not insurance companies), but are not sold through securities exchanges
  
• Provides protection on 100% of the invoice amount (no deductible or coinsurance)
  
• Only covers against the risks of Chapters 7 & 11 bankruptcy (does not cover for protracted default)
  
• Cannot be cancelled by the issuer
  
• Can provide protection on invoices with tenors up to 24 months
  
• Will normally be issued only on face amounts in excess of $500,000
  
• Compared to accounts receivable insurance
  

1. More expensive - 1% - 2% of the face amount per month
   
2. Often available when accounts receivable insurance is not
   
3. No deductible and no reduction for co-insurance
   
4. Non-cancellable (some insurance policies are issued as non-cancellable, but most give the insurer the right to cancel coverage on buyers with sufficient notice to the policyholder)
   

Examples of companies on which A/R Put Options have been issued:

• Sears - Kmart
  
•  JC Penny
  
• Best Buy
  
• Toys "R" Us
  
• Barns & Noble
  
• Macy's 
  
• Radio Shack
  
• Rite Aid

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