ABL Case Study
Does anyone have Asset Based Lending type case studies they would be willing to share.
If anyone is able to provide guidance that would be great.
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Underwriting to the conversion of collateral to cash flow, which is what ultimately pays the loan.
Agree with the above. If you run into a situation where your borrowing base doesn't cover your cash flow needs, you could include a FILO term loan tranche as well to plug the advance rate up to 100%. This is just a secured term loan that gets paid after the ABL. I've seen it pop up in a few ABL deals.
You seem to have a lot of experience with ABL. Could you elaborate on situations where the FILO term loan gets used? I'm particularly interested in the riskier credits that ABL gets involved in.
I’ve seen FILO tranches used for riskier credits to plug the difference between the borrowing base and advance rate. Ex) $200m borrowing base with 80% advance rate only lets the borrower draw $160m, so an additional lender can plug to the full $200m by providing a $40m FILO, although they can provide more or less if they want (it’s not strictly limited to the borrowing base math, I just used that as an example).
The FILO tranche is like a regular term loan in that it’s funded on close and expected to be used before the borrower draws on the ABL. It’s also repaid junior to the ABL and therefore will have higher interest.
In general, it’s better for a borrower to convince the ABL lender to relax the advance rate restrictions or Borrowing Base ineligibles than it is to take out a FILO because 1) the ABL will be lower interest and 2) it’s revolving while the FILO isn’t
There’d have to be a specific need for the capital though like the ABL funding not being enough to cover growth or corporate expenses. You’re not getting a FILO for a dividend recap.
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