Combining Asset-Based and Term Lending Facilities: Navigating Competing Interests, Harmonizing Documentation

A live 90-minute premium CLE video webinar with interactive Q&A

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Tuesday, February 22, 2022

1:00pm-2:30pm EST, 10:00am-11:30am PST

Early Registration Discount Deadline, Friday, January 28, 2022

or call 1-800-926-7926

This CLE course will examine the complexities in negotiating and documenting an asset-based lending (ABL) facility alongside a leverage loan facility with the same borrower, including the differing collateral and priorities between an asset-based facility and a term loan facility, and how those differences affect the terms of the documentation and ultimately the enforcement should either facility go into default.

Description

It is common when there is an ABL facility and a term loan facility to have a "split-collateral" structure with each having a first lien position on different categories of assets and second liens on the asset categories subject to the first lien of the other. The different priorities and exit strategies between the ABL and the leverage loan will lead to certain approaches both in their respective loan documents and the intercreditor agreement.

The ABL facility is underwritten based on recovery from the value of the assets of the borrower (inventory or receivables, for example) and with a focus on the real time liquidity of the borrower arising from its borrowing base. The term lender is less concerned with the value of particular assets and more focused on the borrower's business as a whole and its historical cash flow, so that it can be refinanced, restructured, or sold.

The solutions to the issues that arise in the intercreditor agreement will be driven by the different principles underlying each type of credit facility. It will establish the priorities of each lender's security interest and provide the guidelines for enforcement rights and other rights in the event of the borrower’s distress (including standstill provisions and bankruptcy matters).

Borrowers often request that the ABL documents be drafted to conform with the borrower's term loan documents. This presents issues for ABL lenders who rely on metrics and liquidity protections that may not be contained in a term loan agreement, but may in some respects provide more flexibility to a borrower. While there are many points of overlap, the underlying basis for the underwriting of each type of debt product necessarily leads to some divergence in the handling of covenants and permitted transactions that need to be understood by all of the parties and ultimately captured in the documentation of the two credit facilities.

Listen as our authoritative panel discusses the issues presented for ABL and term lenders when providing credit facilities to the same borrower and how best to document these split collateral financings.

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Outline

  1. ABL and term loan facilities: differences in collateral, underwriting focus of each type of lender
  2. Advantages to borrowing under both types of facilities
  3. Documenting a split collateral financing
    1. Key concerns/provisions for the term lender
    2. Key concerns/provisions for the ABL lender
    3. Pros and cons of conforming ABL to term documents: preserving ABL rights and remedies
  4. Intercreditor agreement: addressing the diverging interests of the ABL and term lender if the borrower defaults

Benefits

The panel will review these and other essential issues:

  • How does the underwriting and collateral for an ABL facility differ from a term loan?
  • What are the added risks associated with split collateral financing?
  • How should those risks be addressed in the loan documents and the intercreditor agreement?
  • What are the pros and cons of conforming the ABL documents to the term loan documents?

Faculty

Kennedy, Wade
Wade M. Kennedy

Partner
McGuireWoods

Mr. Kennedy is the head of the firm's asset based lending group. He focuses his practice on representing lead...  |  Read More

Morse, David
David W. Morse

Member
Otterbourg

Mr. Morse represents banks, hedge funds, commercial finance companies and other institutional lenders in the...  |  Read More

Attend on February 22

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Early Discount (through 01/28/22)

You may pre-order a recording to listen at your convenience. Recordings are available 48 hours after the webinar. Strafford will process CLE credit for one person on each recording. All formats include course handouts.

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