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. Unlike a cash facility in which lenders review the borrower`s future cash flow, the availability of the loan in an ABL facility is fuelled by the quality and value of “credit base assets,” which are typically eligible stocks and eligible receivables (and sometimes eligible equipment). With respect to these types of facilities, lenders are generally very keen to ensure that the assets for which they lend are of good quality and easily accessible in the case of inventories, and that they are likely recovered in the event of receivables. This focus can lead to detailed reporting obligations, both in terms of scope and frequency. A lender wants, for example. B, whether the borrower reports, weekly or monthly, on the value of eligible assets, aging debtors, credit aging and inventory status reports. These requirements are heavy for borrowers, many of whom have under-stretched staff. However, there are opportunities for lawyers to help their clients build a culture of compliance to avoid failures.
These techniques can be used during the maturity phase, during the negotiations of the credit agreement and for the duration of the loan. ABL credit contracts also generally have default events that a borrower may not see in other types of credit facilities. Compliance with the issue of guarantees is essential; a lender may include default events related to a large customer contract or a substantial amount of cancelled or unreaseded debts. As an advisor to the borrower, try to remove these provisions, as these types of events would inevitably affect the credit base. If this is not the case, then the lawyer should try to negotiate the highest thresholds that he can reach to avoid a failure.