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Asset Based Lending

2 Part Course  |  Learn ABL by reviewing trends, structures, documentation & topical issues

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A one-day Asset Based Lending course presented over two-half days in a virtual class from 9:30am to 1:00pm UK time

Part One

Introduction

  • Two approaches to the credit decision:
    • Cashflow based lending
    • Asset-based lending
  • A summary of corporate funding options
  • How ABL is distinguished from other asset-related finance techniques:
    • Asset-backed lending
    • Asset Finance Compared
  • Which types of firms are not suitable for ABL
  • Key concepts in ABL:
    • The 'Borrowing Base'
    • The Advance rate
    • 'Headroom'
    • The Reserves
  • Use and application of ABL Revolving Credit Facility in Banking:
    • M&A
    • Restructuring
    • General corporate purposes
    • Other

Use & Application: Pros & Cons of ABL

  • Advantages:
    • Enhanced liquidity
    • More efficient cost of capital
    • Cheaper funding than RCF
    • More flexible terms
    • Often easier to obtain than traditional bank loans
  • Disadvantages:
    • Not all firms qualify
    • Arduous onboarding process
    • Potential stigma
  • Typical risks for ABL
  • Use and Application (restructuring and M&A)
  • Typical sectors:
    • Firms with asset-rich balance sheets (collateral) &/or strong AR
    • Manufacturing, wholesale distribution, equipment rental, inventory-rich firms, alcoholic beverages (e.g. whiskey, wine)

Collateral in ABL: Why and How it Matters

  • The role of collateral in ABL
  • Key issues:
    • Ranking/priority
    • Control of the collateral
  • Why share pledges matter
  • Fixed and floating charges
  • Key differences
  • Issues with Floating Charges (affects UK only):
    • Why they are essential to ABL & other lenders
    • What is a floating charge and what assets does it cover
    • Floating Charge; pros & cons
    • Differences between the Floating Charge Holder and the Qualifying Floating Charge Holder; why this matters
    • Review key cases; Spectrum, Avanti, Agnew
  • Crown Preference issues (affects UK only):
    • Who and what it affects
    • Specific problems it has created
      • Blocked asset sales
      • Restructurings, esp CVAs more challenging
      • Increased costs
      • Lower advance rates
      • Reduced flexibility for borrowers
      • Enhanced reporting & valuations

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
  • 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
  • Review of pro forma funding calculation
  • Other typical limits
  • Typical Reserves
  • Asset Based Lending Course Case Study: Calculate the effective Advance rate on AR

Inventory Financing

  • What types of inventory qualify for financing:
    • Finished goods
    • WIP
    • Raw materials/commodities
  • Pro-forma funding calculation:
    • Inventory valuation vs funding valuation
    • Gross Orderly Liquidation Value vs. Net Orderly Liquidation Value
  • Typical list of ineligible stock
  • Calculating the Advance
  • Key lender risks:
    • Collateral - Fixed or Floating charge
    • Value leakage
    • Retention of title issues
  • Issues arising from the Crown Preference and how lenders have responded
  • Specific reserves that may affect recoveries re: inventory:
    • Prescribed part
    • Crown preference
    • Landlord’s “distraint”
  • Risk Mitigants:
    • ‘All monies’ clause
    • ‘Mixed Goods’ clause
  • Insurance issues:
  • Key risks for the lender
    • Ownership/title issues
    • Is it a Fixture?
  • Specific issues with 'branded' products

 

Part Two

Supply Chain Financing (Reverse Factoring)

  • Key steps in the process
  • Key benefits:
    • For suppliers
    • For buyers
    • For funders
  • Risk mitigation
  • Typical examples

Plant, Machinery & Equipment

  • What types of PME qualify
  • Typical terms of the facility:
    • Margins, amortisation and tenors
    • Recent developments
  • Key concerns for the asset-based lenders:
    • Ability to sell/relocation
    • Nature of PME – is it specialised/industry-specific?
  • Advance rates
  • Pros and cons of other forms of funding (leasing, vendor finance)
  • Legal issues – Taking adequate security:
    • Plating (why it isn’t always an option)
    • Attachment – is it a fixture or fitting
  • Lessons from the Arena TV case

Real Estate

  • What types of property qualify?
  • Advance rates
  • Valuation issues
  • Key terms of the ABL facility loan:
    • Margins, amortisation and tenors
  • Pros & cons of using asset-based lending vs specialist lenders
  • Legal issues – taking adequate security

Intangible Assets

  • What types of intangibles qualify?
  • The rationale for leveraging intangibles (unlocking hidden value)

Cash Flow Based Loans

  • Typical terms, tenors and margins
  • Recent trends re: cash flow strips:
    • Rationale
    • Balloons
    • Payment holidays
    • Extended tenors
  • Potential pitfalls for the parties

Annual Recurring Revenue ('ARR')

  • What are they?
  • Use and application:
    • Typical sectors
    • Typical assets
  • Calculating the borrowing base
  • Calculating the Advance rate
  • Documentation issues:
    • Financial maintenance covenants
    • Other key commercial terms

Documentation: An Overview of a Typical Term Sheet

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

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 Intercreditor 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
  • ABL Training Case Study: Review key conflict issues between ABL and other funders

Redcliffe’s asset based lending courses are delivered by 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 as both 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.

He was involved in a wide range of public and private transactions when he moved to London and joined Lazard Brothers as a corporate finance executive.

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 before being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in many 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.

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

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

  • Gain an appreciation of asset-based lending 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 intercreditor issues applicable to ABL
  • Have explained the financing accounts receivable (AR) in ABL
  • Master the relevant issues in revolving inventory and plant, machinery and equipment
  • The relevance of ABL to real estate; including a comparison with specialist lending
  • This training course will also include an overview of a typical term sheet and commentary thereon

  • Our ABL course trainer is a senior asset based lending Consultant to Grant Thornton in Debt Advisory. He is actively engaged in advising on deals involving ABL and other debt products.
  • He recently advised two major asset based lending banks on structuring intercreditor arrangements concerning ABL and term debt (a hot topic in Europe).
  • Redcliffe’s ABL training has been presented to various organisations, banks, debt & PE funds and advisors which gives our trainer insight into the challenges facing players in the Asset Based Lending (ABL) market
  • His career also includes stints in commercial asset based lending and investment banking, accountancy, tax and law providing insight from a wide range of perspectives

This ABL training course is aimed at:
  • Professionals involved in deals involving ABL; specifically Lenders providing ABL or in loans where ABL is present
  • Lawyers advising lenders or borrowers on ABL
  • Private Equity professionals who may use ABL
  • Corporate financiers
  • M&A advisors
  • Debt advisory and Restructuring professionals

Background
ABL has gained increasing traction in Europe as well as globally in recent years. Borrowers have sought broader funding solutions in the face of challenging economic and geopolitical conditions.

Competitive pricing vs traditional working capital facilities typically provided by RCFs from banks which have become more expensive as interest rates have escalated has boosted interest from borrowers. Commitment fees on ABL are also much lower.

Increasing acceptance as a funding option, especially by PE sponsors. ABL lenders have worked hard to offer greater flexibility to borrowers e.g. by providing committed facilities and a higher proportion of cash flow strips as part of their funding package.

Sector specialisation in ABL providers. The rise in specialist ABL providers with deep knowledge of specific industries has allowed these lenders to provide tailored funding solutions to meet borrower’s needs.

The challenging economic climate caused by COVID-19, geopolitical events, and dislocation in energy markets has boosted risk aversion in traditional lending. ABL, with its focus on asset values which endure post-distress, offers lenders a lower level of risk and higher recoveries post-default.

Technological developments have made ABL more efficient and data-driven. ABL Lenders increasingly use software to streamline asset valuation and monitoring which has improved decision-making and reduced risk.
Challenges in ABL
  • Despite these benefits, ABL lending has a greater complexity in bifurcated deals, especially in structuring the intercreditor issues between ABL and traditional cash flow-based lenders.
  • ABL relies on collateral - primarily on the value of their collateral so lenders are keen to ensure they have full control over their assets pre and post-distress and the fact that it.
  • Lengthy Initial setup takes longer as ABL lenders need to audit the paper trail and appraise the asset values.

  • The course was very interesting and helpful.
  • The course was fantastic - lots of details and slides prepared ahead of time with specific/applicable examples. The trainer was brilliant lots of knowledge, was very engaging and importantly brought real-life applicability into it which was great.
  • Good knowledge of the product/market and strong examples.
Number of places:
Part 1

£ 795.00

Number of places:
Part 2

£ 795.00

Discounts available:

  • 2 places at 30% less
  • 3 places at 40% less
  • 4 places at 50% less
  • 5 places at 55% less
  • 6+ places at 60% less
  • Select the number of course places and dates to automatically calculate the discount
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