Foreign obligor and multi-currency receivables rules

Two separate risks hide under one label. The first is enforcement: if a customer in another country stops paying, the lender's ability to pursue the claim depends on foreign courts, foreign insolvency law, and whether its security interest even reaches that receivable. The second is currency: an invoice billed in euros is worth a different number of dollars every day, so the collateral value moves with the FX market even when the customer pays perfectly.

Most US agreements exclude foreign obligors by default, then add carve outs: obligors in approved countries, commonly Canada and sometimes other developed markets, balances covered by credit insurance or backed by a letter of credit, and a general foreign basket capped at a percentage of eligible receivables. Securitizations tend to be more accommodating on jurisdictions but stricter on currency mechanics.

Each invoice needs an obligor country and a currency. Convert everything to the facility currency at the agreement's specified rate, apply the carve outs, then test what is left against the basket. This example uses a $30,000,000 eligible pool with a foreign basket of 10 percent, or $3,000,000, for uninsured foreign balances.

Uninsured foreign balances total $3,580,000 against a $3,000,000 basket, so $580,000 falls out. At an 85 percent advance rate that removes $493,000 of availability. The insured Canadian balance never touches the basket. On top of the basket test, some agreements apply an FX haircut, for example advancing against 95 percent of the converted value, to absorb rate movement between certificates.

The fields are obligor id, obligor country, invoice currency, open amount, and the FX rate as of the report date. Country is the field that lies. ERPs often store the bill to address, and a US billing office of a foreign parent looks domestic when the agreement tests the obligor's jurisdiction of organization. Currency has the opposite problem: multi entity ERPs sometimes default the currency field to the entity's functional currency, so a euro invoice booked by the US entity shows as USD.

Rate discipline is the last piece. Most agreements specify the rate source and timing, commonly a spot rate as of the certificate date. Converting at the booking rate, or at whatever rate the ERP cached, produces borrowing base numbers that drift from what the lender computes.

• Foreign eligibility is applied deterministically from obligor jurisdiction and invoice currency, not from whatever the bill to address happens to say.
• Approved countries, insured and letter of credit carve outs, basket sizes, and FX haircuts are all configured per facility to match the agreement.
• Conversion uses the rate source and date convention the facility specifies, applied uniformly across every invoice.
• Every excluded dollar traces to the invoice, its currency, the rate used, and the specific rule that excluded it, so the foreign ineligible line reconciles cleanly.