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The terms of an asset-based loan depend on the type and value of the assets offered as collateral. Lenders prefer highly liquid collateral, such as securities, which can be easily converted into cash if the borrower is in default. Loans with physical assets are considered riskier, so the maximum loan is significantly lower than the carrying amount of the assets. The interest rates charged vary significantly depending on the applicant`s credit history, cash flow, and the duration of their operations. Since ABL facilities often include detailed reporting requirements, a borrower should link all termination obligations to a monthly or quarterly financial report. For example, instead of requiring written notice of a new collateral ten days in advance, legal counsel could revise the agreement by requiring the borrower to announce all new collateral locations with the monthly or quarterly financial or compliance certificate. Better yet, you add a materiality threshold to the notification requirement, so only sites with a warranty greater than a significant amount should be disclosed. In this way, the official responsible for completing the monthly declaration file will be required to disclose any new essential warranty location. If the lawyer structures the ABL loan agreement in this way, the borrower is less likely to forget to make the required termination. The same approach can also be used for other messages (e.B. In the case of notifications of new bank accounts, industrial tort claims and intellectual property). While we have provided an overview of best practices for lawyers in negotiating ABL credit facilities, there are several other unique features of ABL credit facilities that merit further review by legal counsel. ABL loan agreements also tend to have default events that a borrower may not see in other types of credit facilities.

It is essential to retain the issue of safeguards; A lender may include default events related to a large customer contract or a significant number of cancelled orders or uncovered receivables. As advice to the borrower, try to remove these provisions, as these types of events would inevitably affect the credit base. Otherwise, the lawyer should try to negotiate the highest thresholds to avoid defaults. It is one thing for a lost customer to cause a decrease in the availability of the credit base, but another that this loss causes a default event under the ABL loan agreement. When negotiating a credit agreement, several factors, including the borrower`s risk profile or credit rating, affect the extent of the positive, negative and financial obligations imposed on the borrower. .

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