Asset Based Lending definition

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Asset-based lending

This Practice Note gives a brief overview of the typical financing structures adopted by UK asset-based lenders and a summary of the key English law legal issues that arise when financing receivables (commonly known as book debts) specifically in the asset-based lending market together with one or more of the following:•inventory (also referred to as stock)•plant and machinery (also referred to as equipment)•real estate, and/or•cashflow loanThis Practice Note provides a brief overview of typical asset-based lending structures and key issues for consideration in relation to asset-based financing.Key features of asset-based lendingAsset-based lending (ABL) is senior secured lending with the principal purpose of funding the working capital of a trading business. Funds are advanced by the lender based on the realisable value of certain classes of a borrower's assets (known as its 'borrowing base'). ABL is often event-driven, providing a borrower with flexible access to cash during a period of change such as an acquisition or a restructuring. An asset-based lender invariably provides a receivables financing (see: Receivables financing below) as...

Key features of securitisation and asset based lending

RationaleSecuritisation involves the sale of large pools of cash-generating assets to a special purpose vehicle (SPV). The SPV pays consideration for the assets, which consideration is generated by issuing interest-bearing securities (also known as 'bonds' or 'notes') into the capital markets. The securities have the benefit of security over those assets and/or the cashflows generated by them (known as 'receivables'). The cashflows from the receivables are used to pay interest and repay principal on the securities.Types of receivables which can be securitised include:•mortgage payments•bank loan repayments•lease/rental payments•credit card repayments•insurance premium paymentsBenefits of securitisation include:•cheaper borrowing—the SPV may get a better credit rating than the debtor company (originator). Either the obligors for the receivables have a better credit rating than the originator, or credit rating agents may find it easier to rate a single asset (the receivables) as opposed to the originator, which has more variables. A better credit rating means that the SPV can issue bonds/notes with lower yields so reducing the cost of funding (see Practice Note: Impact of...

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Trade and commodity finance—key documentation trends

Banking & Finance analysis: In an age old industry witnessing a rise in new players, how can lawyers and institutions ensure they stay ahead of challenges and opportunities in trade and commodity finance? Richard Usher, partner at DLA Piper, outlines the potential for closer engagement with the needs of customers, and so too the importance of making effective use of due diligence.