Furniture Tomorrow has learned that several large furniture manufacturers have been approached by Wall Street firms to mortgage their spare or unusable parts inventory including nuts, screws and bolts in a new type of structured finance product called a 'parts swap.' The new structured product is currently being marketed as a way to generate cash for the beleaguered industry.
One industry executive who asked that we not use his name because his company is still in negotiations with several W
all Street firms reports that he's in the process of leveraging the unused hardware for a nightstand that never performed at retail, "I have about $124 dollars in screws, nuts and bolts for a nightstand we discontinued and we were able to generate almost $8 million dollars in free cash" said the executive, "and that comes in handy with current business conditions."
Wall Street firms are hoping to securitize the product based on the future cash flow of the spare parts in a process that would bundle various parts swaps together and then sells them to investors. Kevin Sauder, President of Sauder Woodworking, told Furniture Tomorrow that he has been contacted by several Wall Street firms who told him that if he has some spare parts or a discontinued entertainment unit laying around that he has a revenue stream that can be leveraged, securitized and then sold to people who try not to worry about details. One Citigroup executive who has been promoting the parts swaps told us he has every reason to expect Moody's, the investment rating agency, to give the parts swaps a triple-A credit rating.
Wall Street firms then intend to sell credit default swaps against the parts swaps. A credit default swap (CDS) is a type of insurance that protects the buyer in the event that a credit instrument, typically a bond or a loan, goes into default.
As the furniture industry has suffered its worst downturn in decades many manufacturers are eager to leverage their spare or unusuable parts. When asked about the future of parts swaps for the industry one Citigroup executive told us, "clearly this is the future and it's earnings season, leave the details to us."
One industry executive who asked that we not use his name because his company is still in negotiations with several W
all Street firms reports that he's in the process of leveraging the unused hardware for a nightstand that never performed at retail, "I have about $124 dollars in screws, nuts and bolts for a nightstand we discontinued and we were able to generate almost $8 million dollars in free cash" said the executive, "and that comes in handy with current business conditions."Wall Street firms are hoping to securitize the product based on the future cash flow of the spare parts in a process that would bundle various parts swaps together and then sells them to investors. Kevin Sauder, President of Sauder Woodworking, told Furniture Tomorrow that he has been contacted by several Wall Street firms who told him that if he has some spare parts or a discontinued entertainment unit laying around that he has a revenue stream that can be leveraged, securitized and then sold to people who try not to worry about details. One Citigroup executive who has been promoting the parts swaps told us he has every reason to expect Moody's, the investment rating agency, to give the parts swaps a triple-A credit rating.
Wall Street firms then intend to sell credit default swaps against the parts swaps. A credit default swap (CDS) is a type of insurance that protects the buyer in the event that a credit instrument, typically a bond or a loan, goes into default.
As the furniture industry has suffered its worst downturn in decades many manufacturers are eager to leverage their spare or unusuable parts. When asked about the future of parts swaps for the industry one Citigroup executive told us, "clearly this is the future and it's earnings season, leave the details to us."
Nightstand bolts, $124. Free cash, $8 mill. Leveraging your screwed nuts - Priceless!!
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