Combining Asset-Based and Term Lending Facilities: Navigating Competing Interests, Harmonizing Documentation
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Banking and Finance
- event Date
Thursday, August 29, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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.
Mr. Morse is member of the firm and presently co-chair of the firm's finance practice group. He represents banks, private debt funds, commercial finance companies and other institutional lenders in structuring and documenting loan transactions, as well as loan workouts and restructurings. He has worked on numerous financing transactions confronting a wide range of legal issues raised by Federal, state and international laws.
Mr. Kennedy is an attorney in Holland & Knight's Chicago office and a member of the firm's Financial Services Team and co-lead of the Asset-Based Lending Team. He has more than 30 years of experience and focuses his practice on representing lead financial institutions in complex syndicated credits to asset-based and leveraged borrowers. Mr. Kennedye has significant experience documenting asset-based credit facilities in the context of sponsor-driven acquisitions, unitranche facilities and working capital, high yield/term debt and first lien/second lien transactions. In addition, his practice includes representing national financial institutions in single and multicurrency credit facilities, cross-border financings and other leveraged finance and cash flow transactions. Mr. Kennedy's asset-based lending experience spans various industries, including manufacturing, trucking, food products, lender finance, retail, beverage and energy. Prior to joining Holland & Knight, he was the head of asset-based lending and a partner in the debt finance group of an international law firm.
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.
- ABL and term loan facilities: differences in collateral, underwriting focus of each type of lender
- Advantages to borrowing under both types of facilities
- Documenting a split collateral financing
- Key concerns/provisions for the term lender
- Key concerns/provisions for the ABL lender
- Pros and cons of conforming ABL to term documents: preserving ABL rights and remedies
- Intercreditor agreement: addressing the diverging interests of the ABL and term lender if the borrower defaults
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?
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