Canadian Lawyer

26 M A R C H 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m How do you negotiate and prepare an asset-based loan agreement between a corporate borrower and a lender? You are acting for the asset-based lending group of a Schedule I Bank. The Bank has just issued a term sheet to a retail borrower and asked you to take the lead in drafting the fi rst turn of the loan agreement. Timing is tight and you need to be effi cient. The loan is a bilateral loan with a single lender. The ABL facility includes a revolver with a letter of credit sub- facility. The ABL facility has a borrowing base consisting of eligible receivables and eligible inventory. In preparing the loan agreement, the Bank asks you to make sure the following asset-based related issues are covered in the loan agreement: • Separate advance rates for different classes of eligible receivables • A rent reserve equal to four months' rent under its existing leased premises • All inventory outside of Ontario is to be excluded from the borrowing base unless landlord or warehouseman waivers are obtained • Concentration limits for certain receivables must be included in the defi nition of eligible receivables • The applicable margin on the borrower's loan changes depending on excess availability levels • The fi nancial covenants are springing in nature based on excess availability levels by Lydia Salvi, Finance Practice Lead, Practical Law Canada Lydia Salvi joined Practical Law Canada after practising as a senior transactional lawyer in the Financial Services Groups of Baker & McKenzie LLP and Cassels Brock & Blackwell LLP. She is the past chair of the Business Law Section for the Ontario Bar Association. © 2018 Thomson Reuters Canada Limited 00249BU-90317-CE Sponsored by

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