What Is An Abl Credit Agreement

This may seem obvious, but don`t neglect the security agreement. Although businessmen generally do not focus on the security agreement, there may be a large number of hidden problems in an ABL security agreement. Lenders are often buried with different, more stringent termination requirements and agreements in the security agreement, particularly with regard to receivables. For example, a security agreement may prohibit the borrower from adjusting, forgiving or modifying claims. For many borrowers, this standard is too strict to work for their business. To improve compliance success, report all reporting obligations to the “Notification” section of the credit contract and ensure that the documents cooperate. ABL literally means an asset-based loan; It is therefore not surprising that the basis of an ABL facility is the asset that supports the credit base. Unlike a cash facility in which lenders review the borrower`s future cash flow, the availability of the loan in an ABL facility is fuelled by the quality and value of “credit base assets,” which are typically eligible stocks and eligible receivables (and sometimes eligible equipment). With respect to these types of facilities, lenders are generally very keen to ensure that the assets for which they lend are of good quality and easily accessible in the case of inventories, and that they are likely recovered in the event of receivables. This focus can lead to detailed reporting obligations, both in terms of scope and frequency.

A lender wants, for example. B, whether the borrower reports, weekly or monthly, on the value of eligible assets, aging debtors, credit aging and inventory status reports. These requirements are heavy for borrowers, many of whom have under-stretched staff. However, there are opportunities for lawyers to help their clients build a culture of compliance to avoid failures. These techniques can be used during the maturity phase, during the negotiations of the credit agreement and for the duration of the loan. When negotiating a credit contract, several factors, including the borrower`s risk profile or credit rating, affect the extent of the positive, negative and financial obligations imposed on the borrower. Among the most difficult credit contracts are credit contracts with Asset-Based-Lending (ABL). The heart and soul of ABL credit is security; As a result, ABL credit contracts often provide for intensive monitoring and monitoring by lenders, as the credit base is linked to “eligible” assets.

Under such a strict regime and without the good advice of consultants, it is not uncommon for borrowers to erase an involuntary default. The purpose of this article is to provide an overview of ABL credit contracts and to define several best practices in negotiating ABL credit facilities on behalf of borrowers, in order to avoid unintentional “foot errors”. While we have provided an overview of best practices for legal advisors when negotiating ABL credit facilities, there are several other unique features of ABL credit facilities that merit further review by counsel. Since ABL facilities often contain detailed reporting obligations, borrowers should subject all termination requirements to a monthly or quarterly financial report. For example, instead of requiring ten days before a new security site is written notification, the advisor could revise the agreement so that the borrower would notify all new guarantee sites with the monthly or quarterly financial/compliance certificate. It is even better to add a service threshold to the termination requirement, so that only sites with warranty must be disclosed for a material amount.

Comments are closed.