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

Recording of a 90-minute premium CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
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Conducted on Thursday, August 29, 2024

Recorded event now available

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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

As credit terms migrate from the bond market to the leveraged finance market and then into the ABL market, 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.

In addition, 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.

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 do 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
Holland & Knight

Mr. Kennedy is an attorney in Holland & Knight's Chicago office and a member of the firm's Financial...  |  Read More

Morse, David
David W. Morse
Partner
Otterbourg

Mr. Morse is member of the firm and presently co-chair of the firm's finance practice group.  He represents...  |  Read More

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