{"id":225,"date":"2026-05-27T22:04:57","date_gmt":"2026-05-27T13:04:57","guid":{"rendered":"https:\/\/gaap-bridge.com\/?p=225"},"modified":"2026-05-27T22:04:57","modified_gmt":"2026-05-27T13:04:57","slug":"spc-01-why-companies-create-spcs-and-issue-abcp","status":"publish","type":"post","link":"https:\/\/gaap-bridge.com\/?p=225","title":{"rendered":"SPC 01 &#8211; Why Companies Create SPCs and Issue ABCP"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hello everyone, Global CPA here ??<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Recently, the overall offline retail industry has been experiencing significant pressure.<br>Compared with online platforms, traditional retail companies generally operate with much higher fixed costs because they must continuously maintain physical stores, logistics infrastructure, and large workforces.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As a result, offline retailers tend to have higher operating leverage and financial pressure.<br>When consumer sentiment weakens (especially during periods such as the COVID-19 pandemic) the impact on profitability and cash flows becomes much more severe.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Even after the pandemic, many retailers have struggled to fully recover their sales levels.<br><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This has led to an important trend in the market:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><span style=\"text-decoration: underline\">the securitization and monetization of retail properties.<\/span><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Instead of simply holding stores as long-term operating assets, many companies have started using their real estate as a financing tool.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">Why Not Just Borrow Money Traditionally?<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">At first glance, a retailer needing liquidity could simply:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>sell stores directly, or<\/li>\n\n\n\n<li>obtain additional bank loans.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">However, many companies instead choose to establish an SPC (Special Purpose Company) and issue ABCP (Asset-Backed Commercial Paper) through a securitization structure.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Because securitization can provide several strategic advantages compared with traditional financing.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">1. Liquidity Generation Without Immediate Operational Disruption<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">One major advantage is that companies can generate liquidity <span style=\"text-decoration: underline\">while continuing to operate their business.<\/span><\/p>\n\n\n\n<figure data-spectra-id=\"spectra-f7e79536-06d5-445c-b51a-10f2e0f6952c\" class=\"wp-block-image aligncenter size-full\"><img fetchpriority=\"high\" decoding=\"async\" width=\"397\" height=\"245\" src=\"https:\/\/gaap-bridge.com\/wp-content\/uploads\/2026\/05\/image-45.png\" alt=\"\" class=\"wp-image-220\" \/><figcaption class=\"wp-element-caption\">Assets can be Stores<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">For example:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>stores may be transferred into an SPC,<\/li>\n\n\n\n<li>but the retailer can continue using the properties through lease arrangements or operational agreements.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Economically, the company unlocks cash from its assets without completely abandoning its business operations.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This is especially important for retailers that still need physical locations to maintain brand presence and customer access.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">2. Lower Financing Costs<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">Another important reason is funding efficiency.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When assets are isolated inside an SPC, investors often evaluate:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the quality of the underlying assets,<\/li>\n\n\n\n<li>expected cash flows,<\/li>\n\n\n\n<li>and structural protections,<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">rather than focusing entirely on the financial condition of the retailer company itself.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This process is commonly referred to as <strong>bankruptcy remoteness<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Because the assets inside the SPC are legally separated from the originating company, investors may perceive lower risk, which can reduce financing costs compared with ordinary corporate borrowing.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">3. Diversification of Funding Sources<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">Traditional borrowing heavily depends on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>bank relationships,<\/li>\n\n\n\n<li>loan covenants,<\/li>\n\n\n\n<li>and corporate credit ratings.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">However, securitization allows companies to access capital market investors directly through ABCP issuance.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This helps diversify funding channels and improve financial flexibility.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In stressed economic environments, maintaining diversified funding sources can become critically important for survival.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">4. Balance Sheet and Financial Ratio Management<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">Another motivation involves financial reporting and leverage management.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Depending on the transaction structure and IFRS accounting analysis:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>certain assets may qualify for derecognition,<\/li>\n\n\n\n<li>liabilities may be structured differently,<\/li>\n\n\n\n<li>and liquidity ratios may improve.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Of course, IFRS does not automatically allow off-balance-sheet treatment simply because assets are transferred legally.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The accounting treatment ultimately depends on whether:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>risks and rewards are transferred,<\/li>\n\n\n\n<li>control is relinquished,<\/li>\n\n\n\n<li>and derecognition requirements under IFRS 9 are satisfied.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Still, from a financial management perspective, securitization structures can provide greater flexibility compared with ordinary secured borrowing.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">5. Why ABCP?<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">ABCP is frequently used because it provides short-term funding at relatively efficient market rates.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The structure generally works as follows:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Assets are transferred into the SPC.<\/li>\n\n\n\n<li>The SPC issues short-term commercial paper to investors.<\/li>\n\n\n\n<li>Investors provide funding.<\/li>\n\n\n\n<li>Cash flows generated from the assets are ultimately used to repay investors.<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">In many cases, the underlying assets include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>trade receivables,<\/li>\n\n\n\n<li>lease receivables,<\/li>\n\n\n\n<li>credit card receivables,<\/li>\n\n\n\n<li>or real estate-related cash flows.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">As long as investors trust the quality of the underlying assets and the structure itself, ABCP can become an efficient financing tool.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n\n<h1 class=\"wp-block-heading\">Final Thoughts<\/h1>\n\n\n\n<p class=\"wp-block-paragraph\">The rise of SPC and ABCP structures reflects more than simple accounting engineering.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In many cases, these structures emerge because companies are searching for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>liquidity,<\/li>\n\n\n\n<li>funding diversification,<\/li>\n\n\n\n<li>financial flexibility,<\/li>\n\n\n\n<li>and survival during difficult economic conditions.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Especially in industries with high fixed costs such as offline retail, securitization can become a powerful financing strategy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, once assets and cash flows move into an SPC structure, a much more important accounting question emerges:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Has the company truly transferred the economic substance of the assets under IFRS?<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">That question will be discussed in the next article:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>SPC 02 &#8211; Legal Transfer vs Economic Substance Under IFRS<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Thanks for reading.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Hello everyone, Global CPA here ?? Recently, the overall offline retail industry has been experiencing significant pressure.Compared with online platforms, 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