As legal advisors to a range of borrower and ABL / trade financier clients in the market, we are familiar with the structuring considerations which can influence the appropriate choice of working capital financing products and how these fit together with borrower cashflow requirements. Meeting these requirements can mean combining certain product offerings to offer a tailored solution designed to optimise the working capital flow of the business. In our experience, ABL financiers in the market are increasingly working alongside third party finance arrangements to achieve this – combinations we have seen recently of note:
- non-recourse receivables purchase agreements sitting alongside existing senior facility agreements – borrowers may utilise carve-out provisions from existing senior facilities to facilitate the sale (on a non-recourse basis) of receivables to an ABL financier to unlock additional liquidity without disturbing wider terms;
- structured ABL solutions with a multi-asset financing plus a "top-up" cashflow loan – borrowers with a diverse asset base may consider a multi-facility approach (housed in one overarching document) to unlock value from specific asset types (receivables, inventory, real estate, plant and machinery, or a combination of the same) with an additional cashflow strip supported by wider boot collateral of the business which could be used either for day-to-day costs or for specified acquisition purposes;
- second lien / mezzanine financing – secondary facilities which may sit alongside an existing ABL facility and leverage the same secured asset base to extract additional value; and
- import/export trade facilities alongside receivables purchase agreements – traditional trade products can help support existing supply chains and import/export processes combined with the capturing of a receivables revenue stream to free up liquidity across the working capital cycle.
Our experience in dealing with these multi-product ABL offerings indicates that ABL financiers in the market are increasingly comfortable with either combining their offerings with third party providers of supplemental products or, where they have a more diverse product offering at their disposal, taking a joined up approach between internal teams to deliver a bespoke solution required by their borrower clients.
Naturally legal and commercial issues still need to be navigated when providing these types of facilities in tandem – some headline thoughts on key issues based on our experience:
- competing secured interests and priority arrangements – documenting a clear approach on realisation of assets and proceeds is of fundamental importance to ABL financiers so as to provide a line of sight over funded asset classes and appropriate thresholds for control;
- alignment of borrower obligations across separate products – a consistent borrower request is that if multiple facilities are in place then generic borrower obligations align where possible, which requires an element of flex from respective financier positions and typically a more concentrated approach on specific asset reporting and control terms; and
- tranching of facilities and interest rates – the benefit of employing a range of product types or ABL financiers can be to achieve a blended rate which is preferable to a larger single aggregated facility – we have seen certain parts of the ABL market adopt this approach routinely to provide a blended approach in a single facility.
As borrower interest in the ABL market continues to grow, we expect to continue to see a diverse range of product offerings employed to meet the ever evolving needs of borrower clients and for the proliferation of ABL products sitting alongside other forms of finance to be increasingly commonplace.
We would be delighted to support you with a legal review of asset based lending products or to assist in the structuring of a multi-product facility. The Asset Based Lending and Trade Finance team at Addleshaw Goddard have a wealth of experience in ABL, receivables and trade products, acting for a wide range of financier and borrower clients across multiple jurisdictions. We understand the nuances of the ABL, receivables and trade finance market and have long-standing relationships with the independent advisory and valuation teams in the area to add value on a legal and a commercial basis to transactions.
