Abl Agreement

Borrower consultants should advise their clients on potential compliance issues at the earliest stage of financing – ideally, if the company negotiates an agenda for a proposed credit facility. Appointment sheets generally summarize qualification requirements, insurance, communications, financial agreements, negative agreements and default events that a borrower may see in their ABL credit contract. It is therefore essential that the consultant draw a client`s attention to important operational issues when negotiating an agenda, particularly if these restrictions are likely to apply for the next four or five years. Counsel should suggest that clients clearly define the terms to be used in calculating availability, eligible receivables, eligible stocks, reserves and other important provisions. In addition, as might be expected, ABL facilities generally offer little flexibility for managing assets other than normal operations. If the borrower has sold assets, the advisor should indicate that these orders are expressly authorized in the schedule. By discussing critical business issues in advance when negotiating the schedule and not after the lender`s development of the credit contract, the lender will have a clearer understanding of the borrower`s key business factors that influence the terms of the transaction, making the transaction marketing processes and approval of final documents much more fluid. Since lenders participating in multi-issuer facilities may not see the full credit contract until a few days before the conclusion, it is important to ensure that credit issues are addressed during the initial phase of negotiations, to avoid credit authorization problems occurring within the eleventh hour. After the deal is concluded, establish a compliance checklist for the borrower, which will summarize in the layperson`s terms what the borrower can or cannot do to stay in compliance with his ABL credit contract. Consider regular, event-based reporting obligations, as well as negative operational agreements. The inclusion of these requirements can be a valuable tool for borrowers as they navigate through the sometimes overwhelming number of commitments contained in ABL credit documents.

In addition, the advisor should consider considering the maintenance of a list of ongoing compliance issues raised by clients. This list would be useful to have prior to any change or refinancing to resolve any general or recurring compliance concerns. ABL literally means an asset-based loan; It is therefore not surprising that the basis of an ABL facility is the asset that supports the credit base.

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