Asset Based Lending

• Gain an appreciation of asset-based lending (“ABL”) in tandem with other funding sources
• Understand when Asset Based Lending (ABL) is and is not suitable, as well as the choice of funding
• Be taught about the key inter-creditor issues applicable for ABL
• Have explained the financing accounts receivable (“AR”) in ABL
• Learn about the key relevant issues in revolving inventory and plant, machinery and equipment
• Learn about the relevance of ABL to real estate, including a comparison with specialist lending
• Receive an overview of a typical term sheet and commentary thereon

Introduction

• Two approaches to the credit decision
  • Cashflow based lending
  • Asset based lending funds
• Asset-based lending defined and compared with other asset-related finance techniques
  • Asset backed lending
  • Asset Finance compared
• Comparison of funding options
  • TLB vs HYB vs Cash flow vs RCF
• Which types of business are suitable for ABL
• Which types of firms are not suitable for ABL
• Two key concepts in ABL
  • The “borrowing base”
  • “Headroom”
• Use and application of ABL Revolving Credit Facility in Banking
  • M&A
  • Restructuring
  • General corporate purposes
  • Other

ABL in tandem with other funding sources

• ABL and traditional senior (bank) fund based loan facilities
• ABL & high yield bonds (q.v. review of Algeco Scotsman)
• ABL & Unitranche

Key inter-creditor issues for the ABL

• Security – resolving the conflict over competing claims for collateral
  • Review of various approaches
• Enforcement Standstills – resolving conflicting agendas with other lenders
• Option to purchase – does it help
• Consents & Waivers
• Case: Review of key conflict issues between ABL and other funders

Financing accounts receivable (“AR”)

• The basic approach
• Asset backed Loan (ABL) vs debt purchase structure
  • Confidential Invoice discounting
  • Disclosed Invoice discounting
  • Full-service Factoring
• Key differences between discounting and factoring
• The key benefits of Asset Based Lending (ABL)
• Critical legal issues for lenders
• Key accounting issues – off-balance sheet or not requirements
  • Recourse vs Non-recourse
  • Credit insurance – key issues and tips
• Ineligible AR – review of typical ineligible
• Other typical limits
  • Permitted territories
  • Permitted currencies
  • Debtor concentrations
  • Export concentrations
• Typical Reserves
• Calculating the advance
• Case: Calculate the effective Advance rate on AR

Inventory financing

• What types of inventory qualify for financing
  • Finished goods
  • WIP
  • Raw materials / Commodities
  • Typical list of ineligible stock
  • Calculating the Advance
  • Gross Orderly Liquidation Value
  • Net Orderly Liquidation Value
  • Reserves
  • Typical reserves
  • Prescribed part
  • Employees
  • Preferential creditors
  • Landlord’s “distraint”
• Retention of title issues – “simple” vs “all monies”
• Key risks for the lender
• Specific issues with “branded” products

Plant, Machinery & Equipment

• What types of PME qualify
• Key concerns for the asset based lenders
  • Ability to sell & relocation
• Advance rates
• Pros and cons of other forms of funding (leasing, vendor finance)
• Key terms of the facility
  • Margins, amortisation & tenors
• Funding PME on a revolving (inventory) basis
• Legal issues – Taking adequate security
  • Plating (why it isn’t always an option)

Asset Based Lending Real Estate

• What types of property qualify
• Advance rates
• Valuation issues
• Key terms of the abl facility loan
  • Margins, amortisation & tenors
• Pros & cons of using Asset based lending vs specialist lenders
• Legal issues – Taking adequate security

Other matters - overview

• Intangible assets - the rationale for leveraging intangibles (unlocking hidden value)
  • What types of intangibles qualify
• Cash-flow based loans
  • Typical terms
  • Potential pitfalls for the parties
• Case: Create a funding structure using ABL

Reverse Factoring / Supply chain financing

• Overview & Rationale
• How it helps buyers leverage their credit rating
• Impact on operating cash flow based lending
• Impact on Net Debt

Documentation: an overview of a typical term sheet

• Review of main headings
• Security package
• Information & Reporting requirements
• Financial covenants
  • Why and when
• Operational undertakings
  • “Dilution” defined
• Reps and Warranties – typical
• Events of Default
• Fees and charges (one size does not fit all)
• The lender’s approach to margin, fees and charges
• Other costs and expenses
• Exit/termination fees
  • “typical” fees – review various options
  • Typical triggers
  • Issues for Borrower’s to consider (potential pitfalls)

The asset based lending course trainer is an ABL consultant, public speaker and author with expertise in private equity, debt advisory, restructuring and infrastructure. He is a Senior Advisor to KPMG Finland, a Senior Advisor to Reorg EMEA Covenants, the leading provider of information to the European High Yield community, and a Senior Consultant to Grant Thornton UK.

Training programmes are provided to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); personal asset based lending lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte, and as an ABL lawyer with Hofmeyr where he was involved in structuring several high-profile project financings including BMW 3 Series, Ford Sierra, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private transactions. Subsequently, he joined Hoare Govett as an assistant director where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991 he joined ABN Amro’s cross-border M&A team before being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in several deals in Central Europe. During this time he was a member of the EU-PHARE programme and advised the Estonian government on its privatisation programme.

In 1991 he joined ABN Amro’s cross border M&A team prior to being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in a number of deals in Central Europe. During this time, he was a member of the EU-PHARE programme and advised the Estonian government on their privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

Asset based lending (“ABL”) has been a well-established part of the financing environment in the U.S. for many years and has seen increasing volumes globally.  Despite this ABL has struggled to gain the same level of acceptance here for three reasons; first, a lack of familiarity, if not confusion, with the product; second, borrower’s reluctance to abandon their traditional-bank led facilities and last, the dated perception of the product. These headwinds are abating and 2015 has seen record issuance in Europe as borrowers, both corporate and PE, are increasingly recognizing the multiple benefits of Asset Based Lending (ABL), not least the increased flexibility and reduced cost vis-à-vis RCFs.

In practice, the credit markets adopt two distinct approaches to a credit decision: a cashflow based approach and an asset-based approach which includes asset based lending. Most lenders are familiar with the former but not the latter. Moreover, ABL is often confused with other asset-related financing techniques especially asset-backed lending and asset finance. In simple terms, ABL is a form of secured fund based lending where asset based loans are advanced against specific assets. The main focus is on working capital, although ABL also extends to hard assets such as plant, machinery and equipment, asset based lending real estate and, more rarely, intangibles.

This asset based lending training programme provides practitioners with a practical toolkit to understanding ABL from the perspective of borrow, advisor, supporting professional and lender.  It covers the key assets backed line of credit to which ABL is applied and the typical terms and conditions applied to each class. It also identifies the pros and cons of each asset class such as, for example, retention of title in the case of revolving inventory and ineligible items in the case of accounts receivable lending.

In the U.S. market, ABL is frequently used alongside other forms of lending (especially high yield bonds) and this is partly true of Europe, however, thus far inter-creditor have inhabited these ABL structures from evolving in Europe although these problems have been addressed by asset-based lenders who are adopting an increasingly borrower-friendly approach to gain market share. For the same reason, ABL is also more willing to up their ABL facilities with cashflow based facilities

The asset based lending training programme will include several hands-on cases illustrating ABL in practice which will provide a practical angle to the topic and reinforce the learning experience.