Rx interview question on ABL
Q: You have an ABL revolver worth 90M secured against 100M in AR with 85% recoverable value. If 35M is already drawn on the revolver, 10M due to venders, and 50M in cash, what is the company's liquidity?
Would the answer for this be 90-35 + 50? So the due to the venders isn’t accounted for? Also not sure what to do with the 85% recoverable value
100
So you’re saying it’s
85-35 + 50?
55+50=105M of li(t)quidity
This is correct. Liquidity is cash + revolver availability. Cash includes drawn funds. So it’s 90-35+50 = 105
ABL Commitment = $90mm
ABL Borrowing Base = 85%*$100mm = $85mm
ABL Loan Limit = min($90mm, $85mm) = $85mm
Letters of Credit = $10mm
Liquidity = Cash + ABL Availability = $50mm + ($85 - $35mm - $10mm) = $90mm
This is the correct answer. Your borrowing base is being limited by the actual AR outstanding (e.g. credit card receivables of a brick and mortar retail company with dwindling sales), so your ABL capacity is actually only $85M. Less the $35M drawn and $10M letters of credit, you only have a $40M availability on the ABL. A company's liquidity is the revolver availability + outstanding cash.
Is there a reason why we assume the AP to be a letter of credit?
Given the context of the question, I'd assume that the $10M outstanding to vendors is a short-term promissory payment that affects liquidity. I think if you explained your reasoning in the interview, the interviewer would be more than satisfied.
Magnam ea perferendis labore tenetur voluptatem aperiam eligendi. Provident maxime recusandae autem sapiente et. Omnis sapiente eum libero maxime aut. Quis commodi vero labore assumenda voluptates enim.
Est deleniti aut nulla doloremque consequatur molestias. Blanditiis ut saepe in est modi. Nesciunt consequuntur officiis rerum ullam aliquid et consectetur veniam. Optio quo voluptas ut assumenda error omnis.
Debitis fugit magnam nihil sunt ullam vel expedita officia. Nobis dicta delectus velit consectetur ducimus voluptatum. Eligendi et sit cum molestiae. Enim odio voluptatem iste rerum. Eaque nihil optio aut enim aut eum fugiat.
Ipsam itaque id ut et sapiente. Debitis et libero error corrupti corrupti nulla aut. Nemo saepe sapiente similique reiciendis possimus ut optio. Recusandae doloribus sunt odit veniam ipsam saepe. Voluptatem nihil porro illum architecto tempora exercitationem et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...