12. Securitization Transactions

The process of securitization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity, often under a VIE.

The Company securitizes financial assets associated with its loan receivables portfolio. The Company’s securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote special purpose entities (“SPEs”) or the acquisition of loans receivable portfolios through SPEs. The Company generally retains economic interests in the collateralized securitization transactions, which are retained in the form of subordinated interests. For accounting purposes, the Company is precluded from recording the transfers of assets in securitization transactions as sales or is required to consolidate the SPE.

The Company securitizes certain loan receivables through Brazilian and Argentine SPEs, formed to securitize loan receivables provided by the Company to its users or purchased from financial institutions that grant loans to the Company’s users through MercadoPago. According to the SPE contracts, the Company has determined that it has both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant because it retains the equity certificates of participation, and would therefore also be consolidated. When the Company controls the vehicle, it accounts the securitization transactions as if they were secured financing and therefore the assets, liabilities, and related results are consolidated in its financial statements.

As of September 30, 2018, the carrying value of the Brazilian collateralized debt was $15,130 thousands and bears interest at a rate of Brazilian DI plus 3.5% per annum for a term of 36 months, due on June 2021. The carrying value of the Argentine collateralized debt was $4,813 thousands and bears interest at a variable rate equivalent to the BADLAR rate plus 200 basis points with a minimum 27% and a maximum 37% nominal rate per annum for a term of 8 months, due on March 2019. This secured debt is issued by the SPEs and includes collateralized securities used to fund MercadoCredito business. The third-party investors in the securitization transactions have legal recourse only to the assets securing the debt and do not have recourse to the Company. Additionally, the cash flows generated by the SPEs are restricted to the payment of amounts due to third-party investors, but the Company retains the right to residual cash flows.

The assets and liabilities of the SPEs are included in the Company’s interim condensed consolidated financial statements as of September 30, 2018 as follows:



	September 30,
	2018
Assets		(in thousands)
Current assets:
Restricted cash and cash equivalents	$	49,151
Loans receivable, net		59,615
Total current assets		108,766
Total assets	$	108,766
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	88
Loans payable and other financial liabilities		4,968
Total current liabilities		5,056
Non-current liabilities:
Loans payable and other financial liabilities		14,975
Total non-current liabilities		14,975
Total liabilities	$	20,031