Leveraging Cross-Border Asset-Based Lending for Your Business
With U.S. companies looking to compete more effectively in the international marketplace, Cross-Border Asset-Based Lending (ABL) offers an efficient financing solution to companies managing business operations across multiple European jurisdictions.
An increasingly popular option for companies with international subsidiaries, ABL offers an all-in-one cross-border credit facility that provides more flexibility and, in most cases, a lower overall cost of financing across the group based on the creditworthiness of the parent and the group as a whole, rather than on an individual subsidiary. Additionally, it can improve financial control of the group and reduce management time. ABL can provide funding for large-scale initiatives—such as growth, acquisitions or turnarounds—and smaller-scale scenarios, like dividend recapitalizations and public or private transactions.
Many U.S. companies expanding into Europe tend to operate a decentralized structure with each subsidiary maintaining its own banking relationship and financing facilities—e.g., local overdraft, factoring facility, trade facility and local bank credit line. These different financing structures can be complex and limit a company’s ability to optimize business overseas, while the variety of banking relationships may simultaneously introduce restrictions on moving funds from subsidiaries to parent corporations, as well as back into the U.S.
With Cross-Border ABL, multi-national companies are able to maximize liquidity through one global credit facility, with one credit agreement governed by one set of covenants, with one lender or a bank group (if syndicated). Additionally, there may be opportunities to share access to availability within your consolidated international corporate structure.
Cross-Border ABL facilities often have limited financial covenants. In some circumstances, where there is abundant excess availability or other predetermined financial measurements are maintained, no financial covenant compliance is required.
Although ABL is well-established in the U.S., it is still a relatively new financial solution in Europe. Europe remains a collection of nation states each with its own laws for taking security and each with its own bankruptcy regime. While collateral eligibility is generally similar to the U.S., there are differences between jurisdictions—such as various employee claims, taxes, assignability of receivables, retention of title relating to inventory, etc.—which can reduce borrowing base availability. Understanding these differences is critical, and finding a lender that has in-depth knowledge of these issues is key to a more efficient execution and successful syndication.
Is Cross-Border ABL the Right Solution for You?
If you’re a U.S. company with multiple European subsidiaries and a reasonable asset base seeking to simplify your financing structure, Cross-Border ABL may be an appropriate solution for you.
Fortunately, as the business world continues to expand worldwide, so do the opportunities for international financing to support growth. Cross-Border ABL is a growing source of capital for many U.S.-based companies seeking to make the most of the borrowing capacity of their international subsidiaries, as well as to maximize growth strategies.
Meet the Authors
Tim Jacob is responsible for structuring cross-border asset-based lending solutions for U.S. clients across 15 European jurisdictions. With 23 years of banking experience, Tim has been a pioneer and leading proponent of cross-border asset-based lending in Europe. He was an integral part of the team that founded the J.P. Morgan London office in 2005. Prior to joining J.P. Morgan, Tim launched Bank of America’s European asset based lending operations.
Peter DeMaria is responsible for asset-based lending originations in an 11-state geographic territory that includes New England and Mid-Atlantic states. He is also responsible for Chase Business Credit's European business based in London. Peter has been with Chase for more than 28 years and, prior to joining Chase Business Credit, was the Northeast Region Head in Syndicated and Leveraged Finance.
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