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JERRY BAILEY jbailey@ncscredit RONALD A. CLIFFORD, ESQ. rclifford@blakeleyllp

Customer-Sponsored Credit Enhancement Programs (Consignment and PMSI) and Payment Programs (Supply Chain Finance): Reducing Supplier A/R and Preference Risk, or Opening the Door for a Priority Fight?. JERRY BAILEY jbailey@ncscredit.com RONALD A. CLIFFORD, ESQ. rclifford@blakeleyllp.com

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JERRY BAILEY jbailey@ncscredit RONALD A. CLIFFORD, ESQ. rclifford@blakeleyllp

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  1. Customer-Sponsored Credit Enhancement Programs (Consignment and PMSI) and Payment Programs (Supply Chain Finance): Reducing Supplier A/R and Preference Risk, or Opening the Door for a Priority Fight? JERRY BAILEY jbailey@ncscredit.com RONALD A. CLIFFORD, ESQ. rclifford@blakeleyllp.com SCOTT E. BLAKELEY, ESQ. seb@blakeleyllp.com

  2. Credit Enhancement Decision Tree

  3. Two Required Elements 1. Security Agreement 2. Financing Statement or UCC-1

  4. Sports Authority • Pre-Bankruptcy Consignment Program • First Day Hearing • Judge approves GOB sales at 140 stores • Consignment vendors seek to reclaim their goods • 170 consignment vendors • Approximately $84.8 million in consigned inventory • 20% of TSA’s revenue • Consignment Challenge • TSA sells consigned inventory and proceeds to consignors • TSA files 160 lawsuits against consignors, challenging their standing to have a senior right to inventory

  5. Hancock Fabrics • Pre-Bankruptcy Consignment Arrangement • Chapter 11 Restructuring Plan • 70 stores conduct GOB sales • Consignment Challenge • Debtor files adversary complaints against consignment vendors • Part of bankruptcy estate • Avoid interest on consignment goods

  6. Family Christian Books • Pre Bankruptcy Consignment Program • Consignment program offered to all suppliers • Chapter 11 Restructuring Plan • Sale of stores to insider • Consignment Challenge • Consignment vendors filed objections to retain ownership of consigned inventory

  7. Supply Chain Finance • Stages • The customer approves a vendor’s invoice and uploads to a supply chain finance platform • Financial institution contacts the vendor to offer an earlier payment of the invoice in exchange for financing the receivable through its due date • Financial institution purchases the vendor’s receivable from the customer at a discount • Financial institution pays the vendor on the agreed upon date, • Ex. 10 days from issuance of the invoice, instead of the customer-imposed term 75 days • The customer pays the financial institution by the invoice due date

  8. Vendor Strategy for Dealing with TPS

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