Abl Credit Agreement

Many businesses need to borrow or obtain lines of credit to meet routine cash flow requirements. For example, a business could get a line of credit to make sure it can cover its payroll costs, even if there is a small delay in the payments it expects. While we have given an overview of best practices for lawyers when negotiating ABL credit facilities, there are several other unique features of ABL credit facilities that merit further verification from the lawyer. This may seem obvious, but don`t overlook the security agreement. Even though businessmen don`t usually focus on the security agreement, there can be a large number of issues hidden in an ABL security agreement. Unlike a cash facility in which lenders are attentive to the borrower`s future cash flows, the availability of the loan in an ABL facility is determined by the quality and value of the “core credit assets”, usually eligible and eligible receivables (and sometimes appropriate equipment). In this type of facility, lenders are generally very keen to ensure that the assets against which they lend are of good quality and easily accessible in the case of inventory and are likely to be recovered in the event of debts. This creates trust, and in the face of default or other adverse developments, lenders are more likely to cooperate with a company if they are not surprised. The borrower advisor should advise clients on potential compliance issues in the early stages of financing, ideally when the company is negotiating a roadmap for a proposed credit facility. Term Sheets typically summarizes the authorization requirements, presentations, communications, financial covenants, negative covenants, and default events that a borrower can expect in their ABL credit agreement. .

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