Credebt Exchange Transactions

Who uses Credebt Exchange?

Investors seeking a return on their capital that is:

	100% capital protected
	100% yield protected
	100% net allocated

Also, organisations of any size are Originators on the Exchange and sell their ETR to Investors

What is an Exchange Traded Receivable [ETR]?

Credebt Exchange enables invoices from service/goods providers to be offered as Exchange Traded Receivables [ETR] for sale on the Exchange

What is an Originator?

Any organisation seeking to sell its ETR on the Exchange, will register as an Originator

What is a Debtor?

Any organisation that is the payor, or obligor, of an ETR is a Debtor

What does Investment Grade [IG] mean?

Investment Grade [IG] refers to the quality of an organisation’s credit. In order to be considered Investment Grade [IG], the company must be rated at ‘BBB’ or higher by Standard & Poor’s, Fitch or Moody’s. Anything below this ‘BBB’ rating is considered non-investment grade

What does investment quality mean?

Investment quality is a combination of Investment Grade [IG] organisations and other credit worthy organisations, as determined by AIG from time to time

The ‘Face Value’ of an ETR is the total value of the ETR including all taxes, VAT, delivery charges, etc.; It is the total amount that the Debtor must pay for the ETR to be regarded as Settled (i.e. paid in full)

From a deposit perspective, where capital and yield is guaranteed, only banks compete with the Credebt Exchange ETR proposition.

In a pension or other investment context, pension funds, structured product producers and a broad range of other investment opportunities can compete with ETR. However, few if any, offer the same capital, yield and allocation (see above)

How is the Investor’s return/yield achieved?

What is the ‘Buy rate’?

How is the yield calculated?

The yield is calculated on a daily basis using the Trans-European Automated Real-time Gross settlement Express Transfer 2 [TARGET2] system from the European System of Central Banks using the Euroclear method of 1/360 to define 1 day, or part thereof

Currently, Investors do not pay to become Members of the Exchange. This may be subject to change

The ‘cooling off’ period for investing in ETR is 14 days. This means that within 14 days of the date of receipt of an Investor’s funds, the Investor can cancel their order without reason and have their funds returned to them. Although Credebt Exchange is not regulated by the Cenral Bank, it still adheres to ‘best practice’ and the cooling off period is in accordance with the European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004, SI No 853 of 2004. The cancellation period for the Investor ends 14 days after the signing of the Revolving ETR Purchase Agreement contract

Credebt Exchange Legal Components

What is a Revolving Purchase Agreement [RPA]?

A Revolving Purchase Agreement [RPA] is the agreement that stipulates the time duration and the amount that an Investor will commit to the Exchange to purchase ETR. The RPA specifically documents the discount that the Investor expects and this discount is annualised to show the Investor’s yield for the duration/period of the RPA

A ‘Traded ETR’ is any ETR that has been sold on Credebt Exchange

Who owns a Traded ETR?

Once an ETR is sold and becomes a Traded ETR, the Investor that paid for the ETR is the legal owner and as the legal owner, has vested the ownership and care of that ETR in Credebt Exchange as Document Agent and Servicer

Are ETR another form of Invoice Discounting/Factoring [IDF]?

No. The use of the Credebt Exchange Master Agreement that enables ETR is substantially different to Invoice Discounting/Factoring [IDF]. With IDF the risk is to the Originator. With ETR the risk is to the investment quality Debtor (i.e. not the Originator) where risk of default is unlikely

What is the Credebt Exchange Master Agreement?

The Credebt Exchange Master Agreement is the central, legal instrument that makes exchange trading possible

The Master Agreement enables invoices to be offered for sale as ETR via the true sale method that features full legal assignment from the Originator to the Investor (i.e. the Investor’s risk is absolutely to the Debtor). Every Member of the Exchange is bound by the Master Agreement

Where can I see the Master Agreement?

When the Investor commits to purchasing ETR on the Exchange, they must confirm their order (in most cases, this is an online confirmation, directly on the Exchange) prior to trading commencing. The Master Agreement is visible to the Investor at the point of confirming their order. For more information read the Quick Start Guide

The Notice of Assignment [NoA] is a document that is sent to the Debtor, prior to Trading the ETR, to advise them that the invoice has been sold and is owned by Credebt Exchange (in trust for the Investor) and that payment must be made to the specified Credebt Exchange Bank account

A Notice of Assignment [NoA] is necessary to ensure absolute security in the ETR Investor’s purchase. The NoA provides for True Sale and Legal Assignment. By law, to achieve legal assignment, the Debtor must be notified that the ETR has been sold and that the Investor is the new owner

When the investor confirms their order using the Revolving ETR Purchase Agreement [RPA] by either signing this on paper, or online, it states what the ETR Default Repurchase percentage is. For Retail Investors, this is always set to 100%. This means Credebt Exchange is contractually committed to repurchase any ETR that default (i.e. are not Settled, in full, within 90 days of the Expected Date). To protect the Investor credit insurance is provided by AIG

Credebt Exchange purchases credit insurance for its own benefit from AIG to ensure it has adequate capital to repurchase any ETR that default

For Retail Investors, the ETR Default Repurchase percentage is always set to 100%. This means Credebt Exchange is contractually committed to repurchase any ETR that default

Credebt Exchange repurchases, or buys back, any Traded ETR that is not Settled within ninety (90) days of the Expected Date due to non-payment or insolvency of the Debtor or which has been written-off as uncollectible. Credebt Exchange shall repurchase such Traded ETR by paying to the Servicer an amount equal to the Repurchase Price of such Traded ETR.

Specific Investor & Intermediary Information

Currently, Investors do not pay to become Members of the Exchange. This may be subject to change

For security and confidentiality reasons, All Exchange users must apply to become a registered user. All registered users are supplied with a Digi-Access™ two factor authentication certificate. Only users in possession of a valid Digi-Access™ can login to the Exchange. This level of security is used by banks, government and online systems where high security, authentication and identification are required

No. Credebt Exchange receives and securely stores the invoice and this is only given to any Institutional Investor that has not elected to have Credebt Exchange repurchase ETR that are in default. In this (rare) instance, the Institutional Investor receives a copy of the invoice so that they can pursue the distressed debt. No Retail Investor is permitted to trade unless the ETR Default Repurchase percentage is 100% (i.e. so that Credebt Exchange must repurchase any defaulted ETR)

No. Credebt Exchange receives and securely stores the invoice and this is only given to the Investor if the ETR is not Settled (i.e. paid in full by the Debtor) within 180 days so that they can appoint a debt collection agent to pursue the distressed debt

Institutional Investors trade directly on the Exchange. Retail Investors are invited by an Intermediary to become Members of the Exchange. For more information read the Quick Start Guide

Investors that agree a specific Buy rate are agreeing to buy a specific ‘block’ of ETR over a certain period of time on a recurring or revolving basis. It is this Revolving ETR that provides the Investor with a constant supply of ETR until the tem of their investment period is reached

Credebt Exchange is not regulated by the Central Bank of Ireland as a result of operating the Exchange and providing the Exchange Services. Its role is limited to that of Negotiation Agent, Document Agent & Servicer in respect of the Exchange and the Exchange Services and that of introducer, negotiator and facilitator in respect of the sale and purchase of ETR by Members over the Exchange.

Albeit that ETR differ significantly from Invoice Discounting/Factoring [IDF], ETR ‘fall under’ the IDF exception. For example, although a Bank is regulated, the Bank’s IDF business is not regulated. This is becuase IDF uses neither financial instruments nor investment instruments in operating its business.

Credebt Exchange uses the Exchange to introduce ETR Originators (i.e. sellers) to ETR Investors (i.e. buyers) and documents the buying and selling of ETR. From meeting with the Central Bank of Ireland, the buying and selling of ETR is IDF exempt and is therefore not a regulated activity

ETR are not financial instruments and as such, both IIA firms and MiFID firms can trade in ETR, regardless of what their Central Bank licences permit them to do. ETR could just as well be apples or oranges from a licensing perspective

The following information has been provided by Deloitte. The information is intended as a guideline only and Investors should seek independent tax advice, subject to status.

	Individuals & Partnerships	If the transaction is an investment transaction, then the individual investor will be subject to Capital Gains Tax (CGT) of 33% on any gains. However, the first €1,270 of any gain will be exempt from CGT. CGT taken at source. This means it can be off-set against other capital losses in prior, or even current, years Any gain would need to be included in Section M of the Form 11
	Company Directors	In general, companies which hold assets (such as the debts) such as “general insurance” companies and banks are taxable on profits at the 12.5% rate. The profit made by the investor should be subject to the 12.5% rate, provided the assets are held as part of the trade and income is earned in the course of a “trade”
	Pension Funds	Income and gains arising to a pension fund are rolled up tax free
	Hedge Fund	While hedge funds can encompass a wide range of investment vehicles, in Ireland typically hedge funds use Qualifying Investment Funds [QIFs]. QIFs are not subject to direct tax on their income and gains. Income and gains are rolled up tax free with a tax charge only arising on certain chargeable events such as distribution of profits
	Life Companies	Recently incorporated Irish tax resident life assurance companies, together with their overseas branch(s) are generally taxed in accordance with the trading profits as shown in their GAAP/IFRS accounts. Certain of these companies will be subject to Irish corporate tax using a more complex computation; such special computational rules apply where Life Assurance Companies carried on business of writing policies pre 2001. The rate of corporate tax on the profits is 12.5% provided the life companies are holding the assets on trading account