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Elise DiBenedetto
Manager, Other Professionals
Elise DiBenedetto is a skilled professional with a strong background in retail and corporate finance.
Spencer Ware
Senior Managing Director | Partner, Partners
Spencer Ware is a turnaround and restructuring expert with over 20 years of deep experience in developing comprehensive business solutions in restructurings and reorganizations.
Partner Spencer Ware and Manager Elise DiBenedetto explored how retailers can prevent a difficult situation with their ABL Lender, what milestones to anticipate in a Chapter 11 bankruptcy filing, and knowing your borrowing base in the most recent installment of the Turnaround Management Association‘s Journal of Corporate Renewal.
Asset based loans (ABLs) are used by most retailers because they are secured by physical assets, in most cases inventory and accounts receivable (AR), thus they have a higher likelihood of being repaid in the event the company becomes distressed. Traditional in-the-box ABLs from commercial banks typically carry lower interest rates than other loans, such as a term loan or cash flow loan. The loan amount available to borrow typically flexes with inventory and accounts receivable trends—increasing when they are higher and decreasing when they are lower. Unfortunately, these structures come with both (i) complex reporting requirements and (ii) the ability for the ABL lender to liquidate the borrowing base collateral with what can feel like a wide range of discretion. The collateral ABL lenders rely on in retail situations is mostly the inventory sitting on the retailers’ shelves—and if the ABL lender is reasonably concerned its loan is close to becoming impaired, its loan documents generally allow for (directly or indirectly) a recovery. This stage generally results in the retailer liquidating. Typically, this happens after reserves are put in place and financial analysis and diligence are completed by the ABL lender.
Unfortunately, these situations unfairly cast a negative light on the ABL lender. From our perspective, this is usually not the ABL lender’s fault. Sure, every situation has two sides and communication can break down, but more often than not, it's actually the retailer (or one of its stakeholders) that has unknowingly pushed the ABL lender into a difficult position and doesn't realize how quickly the situation (or their liquidity) can unravel.
Read full article here at TMA Journal of Corporate Renewal.
Mar 1, 2025