Over the past decade, ABL has established itself as an increasingly important source of financing for Large and Major Corporates looking to fund change events such as buyouts, acquisitions and refinancing.
Whereas EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples have traditionally been used as a basis for lending, ABL’s flexibility helps businesses to secure backing against the sales ledger, stock, plant, machinery, property, and even intangible assets such as their brand.
In light of current liquidity constraints, ABL’s ability to quickly unlock the hidden value within a large company’s entire asset base is making it a significant source of large scale funding for businesses of all sizes and across all sectors.
Making sizable transactions fly
As ABL facilities are guaranteed against corporate assets, the level of funding available to a company is dependent on the strength of its balance sheet.
For Large Corporates which are asset rich, this makes it an attractive method to ‘sweat’ their resources and potentially release significant levels of capital.
ABL is a robust means of financing and, by working in conjunction with the corporate finance community, syndicates can be formed which are capable of releasing enough funding to complete major transactions.
Commercial Finance leads this end of the market, having arranged and managed one of the biggest multi-currency ABL deals ever completed in the UK, the US$500 million syndicated facility for Aero Inventory Plc.
The business is a provider of inventory management and procurement services for the consumable parts used in commercial aircraft maintenance. It holds over 34 million components across 10 countries and has contracts in place with airlines and aircraft maintenance, repair and overhaul businesses.
The refinancing package developed by Commercial Finance was secured on the company’s inventory and trade debtors in the UK, Ireland, Canada, the United States, Hong Kong and Australia.
The scalable ABL package increased the company’s available facilities and provided working capital headroom to support potential future contract wins and growth.
The ability to finance a significant quantity of global inventory through a facility linked directly to the value of the stock was very attractive to a working capital intensive business like Aero Inventory.
It also provided the business with the sophisticated loan management and close monitoring techniques employed by ABL lenders.
Leading the way with complex deals
Commercial Finance is also increasingly being called upon to help structure complex deals which involve forming close working partnerships with advisors and management teams.
Many are mergers and acquisitions involving businesses with multiple trading entities and complex balance sheets.
These require Commercial Finance to draw on the strength of the enlarged business to provide the funding required not only to complete the initial transaction but also to ensure strong working capital post-deal.
This highly tailored and strategic approach provides the business with the headroom required to target further organic growth and the ability to quickly ramp up facilities to support further complementary acquisitions.
Funding for private equity firms
In addition to funding sizable and complex transactions, ABL has come to the fore as an ideal form of financing for private equity firms and their portfolio businesses.
Private equity houses are increasingly incorporating ABL into their deal structures to fund both the transaction and the ongoing investment strategy.
Its flexibility allows ABL to sit comfortably alongside debt and equity in a deal structure and can implement both value protection and enhancement strategies.
Lloyds TSB Commercial Finance is working with a number of private equity houses to provide the working capital required to support their portfolio businesses and to facilitate the expansion of their buy and build platform companies.
We expect ABL to continue cementing its position at the deal table over the coming months and Commercial Finance will continue to lead the way in ensuring Large and Major Corporates can access our expertise and funding to meet their changing requirements.