{"id":36301,"date":"2018-07-31T07:49:34","date_gmt":"2018-07-31T12:49:34","guid":{"rendered":"http:\/\/olduvai.ca\/?p=36301"},"modified":"2018-07-31T07:49:34","modified_gmt":"2018-07-31T12:49:34","slug":"hidden-debt-loophole-could-be-widespread-fitch","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=36301","title":{"rendered":"\u201cHidden Debt Loophole Could be Widespread\u201d: Fitch"},"content":{"rendered":"
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\u201cHidden Debt Loophole Could be Widespread\u201d: Fitch<\/a><\/h3>\n<\/header>\n
\n

Use of this financial instrument has ballooned. No one knows to what extent because there\u2019s no disclosure. But it was a \u201ckey contributor\u201d to the sudden collapse of outsourcing giant Carillion.<\/strong><\/p>\n

As regulators and stiffed creditors were poking through the debris of collapsed outsourcing giant Carillion<\/a> \u2013 once employing 43,000 people worldwide \u2013 they found that the UK company had hidden much of its debts. And Fitch Ratings warned that this \u201ctechnique\u201d \u2013 a \u201cdebt loophole\u201d \u2013 may be \u201cwidespread\u201d in the US and Europe.<\/p>\n

Carillion provided services to governments. It didn\u2019t manufacture anything, didn\u2019t have a lot of assets, and didn\u2019t have a lot of debt \u2013 at least not disclosed on its books. Net debt on its balance sheet amounted to \u00a3219 million. But Fitch estimates that it had an additional<\/em>\u00a0financial debt of \u00a3400 million to \u00a3500 million.<\/p>\n

This debt was hidden by a \u201ctechnique commonly referred to as reverse factoring,\u201d Fitch says. And it was \u201ca key contributor to Carillion\u2019s liquidation.\u201d<\/p>\n

This \u201creverse factoring\u201d \u2013 part of supply chain financing \u2013 allowed Carillion to hide a debt of \u00a3400 million to \u00a3500 million in \u201cother payables,\u201d such as money owed suppliers. There were indications that something was off: Over a four-year period, \u201cother payables\u201d had nearly tripled, from \u00a3263 million to \u00a3761 million. According to Fitch, \u201cThis appears largely to have been the result of a reverse factoring program.\u201d<\/p>\n

<\/ins>But this was financial debt owed to banks \u2013 not trade accounts payable.<\/p>\n

Any disclosure? <\/strong><\/p>\n

Almost none. Fitch explained in the report (press release here<\/a>):<\/p>\n

There was one passing reference to the company\u2019s early payment program in the non-financial section of the accounts, but nothing in the audited financial statements and no numbers.<\/p>\n

The only clue to the scale of the supply chain financing was the growth in \u201cother payables,\u201d the implications of which do not appear to have been appreciated by many in Carillion\u2019s broader stakeholder group.<\/p><\/blockquote>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

\u201cHidden Debt Loophole Could be Widespread\u201d: Fitch Use of this financial instrument has ballooned. No one knows to what extent because there\u2019s no disclosure. But it was a \u201ckey contributor\u201d to the sudden collapse of outsourcing giant Carillion. As regulators and stiffed creditors were poking through the debris of collapsed outsourcing giant Carillion \u2013 once […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[21030,195,4977,21031,11754,1578,2080,4254,4255],"class_list":["post-36301","post","type-post","status-publish","format-standard","hentry","category-economics","tag-carilllion","tag-debt","tag-fitch-ratings-agency","tag-hidden-debt","tag-loophole","tag-net-debt","tag-united-kingdom","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=36301"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36301\/revisions"}],"predecessor-version":[{"id":36302,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/36301\/revisions\/36302"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=36301"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=36301"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=36301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}