Borrowing base facilities—taking security
Produced in partnership with Dentons

The following Banking & Finance practice note produced in partnership with Dentons provides comprehensive and up to date legal information covering:

  • Borrowing base facilities—taking security
  • Eligibility criteria
  • Choice of law of security documentation
  • Requirement for freedom to trade
  • Identification of assets
  • Security over goods
  • Documents of title
  • Security over rights to payment and other contract rights
  • Security over collection accounts

Borrowing base facilities—taking security

Borrowing base facilities ('BB Facilities') are secured on the assets forming the borrowing base, which consist of:

  1. goods in storage or in transit

  2. rights to payment for goods, such as payments due under sale contracts and payments under letters of credit, and other contractual rights under such contracts

  3. the sales proceeds of goods, paid into a collection account

The assets used to secure the facility are constantly being traded and replaced. A borrowing base report (a 'BB Report') is prepared on a regular basis (usually weekly or fortnightly) listing the assets which are to constitute the security for the BB Facility at the date of the report. Each time a new BB Report is delivered, the list of assets constituting the security for the BB Facility is updated. As trading continues during the period up to the next BB Report, assets included in the BB Report will usually be sold during the course of that period.

In practice, the assets included in the BB Report move into different categories over a period of trading: goods in storage or transit are sold and then become rights to payment under sales contracts: those payments are then collected and the proceeds paid into a collection account, out of which the BB Facility debt may be serviced.

For more information on borrowing base facilities in general, see Practice

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