Repo 105

What is a 'Repo 105'

A Repo 105 is an accounting trick in which a company classifies a short-term loan as a sale and subsequently uses the cash proceeds from said sale to reduce its liabilities. In the repo market, companies are able to gain access to the excess funds of other firms for short periods in exchange for collateral (usually a bond). The company that borrows the funds will promise to pay back the short-term loan with a small amount of interest and the collateral typically never changes hands. This is what allows firms to record the incoming cash as a sale; the collateral is assumed to have been "sold off" and bought back later.

BREAKING DOWN 'Repo 105'

Repo 105 made headlines following the collapse of Lehman Brothers. It was reported that Lehman accountants used the accounting maneuver to pay down $50 billion in liabilities to reduce leverage on their balance sheet before earnings were announced. This made it look like Lehman was much less reliant on debt than it actually was.

RELATED TERMS
  1. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  2. Cross Collateralization

    The act of using an asset that is currently being used as collateral ...
  3. Cash Collateral

    Cash collected when liquid assets are sold during Chapter 11 ...
  4. Non-Recourse Debt

    A type of loan that is secured by collateral, which is usually ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  6. Current Liabilities

    A company's debts or obligations that are due within one year. ...
Related Articles
  1. Retirement

    Money Market: Repos

    Repo is short for repurchase agreement. Those who deal in government securities use repos as a form of overnight borrowing. A dealer or other holder of government securities (usually T-bills) ...
  2. Economics

    Lehman Brothers: The Largest Bankruptcy Filing Ever

    Lehman Brothers survived several crises, but the collapse of the U.S. housing market brought the company to its knees.
  3. Investing News

    DTCC And Digital Asset Bring Blockchain To Repos

    The rising interest in blockchain has attracted none other than the Depository Trust & Clearing Corporation (DTCC), an entity at the core of post-trade market infrastructure to test bitcoin’s ...
  4. Investing Basics

    A Primer On Collateralized Debt Obligation (CDOs)

    A collateralized debt obligation, or CDO, is a structured financial product backed by a pool of loans. When a retail or commercial bank approves loans such as mortgages, auto loans or credit ...
  5. Trading Systems & Software

    The Fast-Paced World of Libor & Fixed Income Arbitrage

    LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a step-by-step explanation of how it works.
  6. Investing Basics

    What's a Reverse Repurchase Agreement?

    A reverse repurchase agreement is the buyer side of a repurchase agreement (also called a repo).
  7. Entrepreneurship

    Using Collateral to Obtain a Loan for Your Small Business

    Learn what assets can be used as collateral for an asset-based loan, and find out best practices when seeking asset-based lending.
  8. Investing

    What's a Liability?

    A liability is a debt. It is an obligation that arises during the course of business and represents a third-party claim on the company's assets. A liability can arise in a number of different ...
  9. Economics

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?
  10. Fundamental Analysis

    Reviewing Liabilities On The Balance Sheet

    As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.
RELATED FAQS
  1. What is the difference between a term and open repurchase agreement?

    Learn about the main difference between a term and open repurchase agreement, including when each is used and how the interest ... Read Answer >>
  2. In a repurchase agreement (repo) why is a longer tenor more risky?

    Learn about the relationship between repo tenor length and risk, and find out how tenor affects interest rate risk and counterparty ... Read Answer >>
  3. What risks does the dealer (lender) in a reverse repurchase agreement take on?

    Read about the lender risks of participating in reverse repurchase agreements or for dealers who use the Fed's overnight ... Read Answer >>
  4. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
  5. When did people first start using collateral to secure loans?

    Read about the history of lending and collateral, including a time when an entire nation was pledged as collateral for all ... Read Answer >>
  6. Are accounts receivable used when calculating a company's debt collateral?

    Learn how accounts receivables are recorded as assets on a balance sheet; they are used when calculating a company's total ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center