We advise on the structuring of debt facilities for clients seeking to use asset based lending (often first time users).
The following three situations would typically trigger our involvement:
- Refinancing – maturing debt facilities, rapid sales growth and international expansion together with trading downturns and manage-aways due to under performance
- Acquisitions, disposals & mergers – sponsor seeking acquisition or merger financing for a corporate finance transaction (e.g. MBO, MBI or BIMBO)
- Restructuring – facility extensions, facility amendments, bullet loan repayments, new money requests, covenant waiver and reset negotiations
Asset based lending is used as an alternative to cash flow based debt structures in order to increase or optimise the level of debt available to a borrower and minimise the burden of debt amortisation.
Asset based lending combines revolving finance facilities against a borrower’s current assets (receivables and inventory) with amortising term loan facilities against a borrower’s non-current assets (plant, machinery and freehold property).
Asset based lending can be particularly effective where a borrower is asset rich (strong balance sheet) and relatively earnings poor (comparatively low profitability). Sectors that suit asset based lending, include: manufacturing, distribution, printing, haulage, retail, contract recruitment and business services.