Collateral

Borrowing Base

A collateral base, agreed to by the lender, which is used to limit the amount of funds the lender will advance the borrower. The borrowing base specifies the max amount that can be borrowed in terms of collateral type, eligibility and advance rates

Cash Burn

The rate at which a company uses up cash. Cash burn is typically calculated as the difference between cash inflows and outflows

Cross-default

The right to declare a loan in default if an event of default occurs in another loan provided to borrower

Lockbox

a cash management product offered by financial institutions that accelerates a clients collection of receivables. the clients customers are directed to make payments to post office boxes where the payments are picked up daily by the bank and processed for deposit

Set-off

a common legal right of a lender to seize deposits owned by a debtor and deposited in the lenders institution for nonpayment of an obligation

Suppressed availability

the amount by which the borrowing base exceeds the loan commitment

Dilution

the difference between the gross amount of invoices and the cash actually collected for such invoices. Common receivable dilution factors include discounts, returns, allowances and credit losses.

Net orderly liquidation value

the estimated value of assets liquidated in an orderly manner over a reasonable period of time, generally six to nine months. the NOLV should be established by a competent party who is independent of the credit transaction

Forced liquidation value

the estimated value of assets liquidated through an auction sale with the seller being compelled to sell the assets with a sense of immediacy on an as-is where-is basis as of a specific date

Advance rate

the max % that the lender will lend against a type of collateral. The advance rate can vary based on the type of collateral, terms, age, and sometimes the financial strength of the obligated policy

Airball

the portion of a loan that exceeds the amount supported by the underlying collateral, therefore dependent on support from the company's cash flow or EV

Cash Dominion

A control agreement wherein the borrower's receivable receipts are sent by the customers to a lockbox controlled by the lender. Under a full cash dominion arrangement, the bank controls the cash collections and applies the proceeds to the borrowers loan account before releasing any funds. Cash dominion relationships may also be springing.

Advance

A drawdown or disbursement of funds according to the terms of a loan agreement

Aging(Schedule)

A periodic report listing a borrowers AR or AP balances, by customer or supplier detailing the current status or delinquency of the balances that are owed to them from customers (AR) or owned by the company to its suppliers (AP)

Blanket Assignment or Blanket Lien

An agreement giving the lender a security interest in all of the assets owned by the borrower. "catch all" security interest that covers all personal and real property. Personal property refers to all tangible and intangible goods, which are not fixed or immovable.

Borrowing Base Certificate

An official document prepared or signed by the borrower that certifies the borrowing base presented has been calculated in accordance with the loan agreement

Cross- Collateralization

The act of securing a loan with collateral that also secures one or more additional loans. In an event of default, cross-collateralized assets can be used to satisfy the collateralized debts

Availability

The additional funds that a lender will advance under the terms of the credit facility. Availability is calculated as the difference between borrowing base (capped at the commitment amount) and the outstanding balance of the credit facility

Formula

a calculation to determine the borrowing base in which a margin or advance rate is applied to each type of collateral

Eligible collateral

a defined term in the loan agreement that controls what collateral can be included in the borrowing base

Security agreement

a document giving a lender a security interest in assets pledged as collateral. This agreement signed by the borrower describes the collateral and its location in sufficient detail so the lender can identify it and assigns to the lender the right to sell or sips of the assigned collateral if the borrower is unable to pay the obligation

Mortgage

a legal agreement by a bank lends money in exchange for taking the title of the debtors property, with the condition that the conveyance of title becomes void upon the payment of debt

Lien

a legal right granted by the authority of the court to control or to enforce a charge against another's property until some legal claim is paid

Revolving line of credit

a loan facility that allows to frequently draw and repay advances. The proceeds are usually used to support the working capital needs of the borrower

Uniform commercial code

a model framework that addresses commercial transactions. Each state may modify or exclude provisions of the model framework when adopting the UCC. While the UCC varies from state to state the spirit of the state-adopted statues is consistent. The UCC was established to stimulate interstate commerce by making states commercial laws more consistent.

perfection

a secured party perfects a security interest in order to help assure that no other party, such as another creditor or a bankruptcy trustee will be able to claim the same collateral in the event that the debtor becomes insolvent. By perfecting its security interest a secured party seeks to gain priority over other parties regarding the collateral

Order-advance

an over-advance that increases the loan balance beyond the amount supported by the borrowing base. a revolving line of credit is said to be over-advanced when outstanding under the facility exceed the borrowing base

ineligible collateral

collateral that does not meet the criteria specified in the loan agreement. remains part of the collateral pool but does not qualify for inclusion in the borrowing base

Field Exam

comprehensive review

pari passu

most frequently applied to collateral but can also refer to other aspects of the loan structure, pari pass means facilities (or lenders) are accorded equal treatment under the loan agreement