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Asset based lending: a funding alternative for Irish corporates Back  
Comprehensive Asset Based lending (CABL) is a form of debt instrument that is well establishment in the US but has been slow to take up in Europe and Ireland. Judith McMath & Donal Duffy outline the benefits of ABL to capital intensive, asset rich businesses as a method of raising additional funding.
CABL is defined as senior debt secured against all the assets of a business, including stock, debtors, plant and machinery and land and buildings, in a single funding package. Other assets, including trademarks and patents may prove leveragable in this context. It is an effective and comprehensive method of leveraging a company’s underlying assets. Typically, businesses that would benefit from CABL would be capital intensive, asset-backed businesses which are either rapidly expanding, highly leveraged or underperforming and even going through a period of turnaround.

In summary CABL is a financial debt instrument that is mainstream in the US for many years but has been slow to develop in Europe and in turn in Ireland. This has been partly because of a lack of clear understanding of the product and also due to the fact that CABL has been largely restricted to the UK corporate sector.

Burdale Financial Limited (Burdale), a wholly owned subsidiary of Bank of Ireland, has been a player in the Comprehensive Asset Based Lending (CABL) market since the 1990s. Since its acquisition by Bank of Ireland in 2005 Burdale has continued to expand both its deal size, product range and European reach and it recently completed its’ first Irish deal under Bank of Ireland ownership by funding the MBO of the Glanbia Meats business from Glanbia Plc.

The profile of the local Irish corporate sector is such that there are a proliferation of asset-rich, “old economy” businesses with high working capital requirements operating in mature fragmented markets. These characteristics make a CABL funding structure attractive to corporates within these parameters.

To determine the suitability of CABL as a funding mechanism for a business we will look to the sector, asset quality, management and information flow. Our due diligence is extensive and will include detailed analysis of debtors / stock and property with expert valuers deployed to estimate the value of each asset. The documentation process is similar to any transaction and Irish lawyers are very familiar with this process. Post transaction ongoing due diligence is equally important to ensure access to funding and retain headroom agreed at the outset of the deal.

The real value of CABL is access to a defined quantum of funds agreed at the outset and based on an identifiable / quantifiable pot of assets. It is the transparency and certainty of funding (so important in the current environment) that are the key selling points. It should also be noted that CABL is potentially a slightly more expensive source of funding but that is on account of the additional quantum, the level of commitment and the resources required to deliver the product.

The benefits of ABL are numerous for a capital-intensive asset-rich business and include the less stringent covenants referred to above and the revolving credit nature of the facilities - no heavy repayment schedules draining cashflows and the ability to reinvest internally generated cash back into the business.

The prospects for Irish ABL in 2008 and beyond
The current turmoil in financial markets will inevitably impact on profit margins of many businesses and the credit crunch in particular may start to bite many of those businesses in terms of their ability to raise additional funding, or indeed to retain existing levels of traditional debt funding. This, coupled with the ever-evolving and developing nature of the CABL sector and its increasing accessibility to Irish businesses, will mean that such businesses should take a careful look at all their funding options and seriously consider the CABL option in appropriate circumstances. Bank of Ireland Corporate Banking Ireland sees a unique opportunity to provide such facilities to Irish businesses through its’ subsidiary, Burdale, and is committed to completing more deals of this nature in the foreseeable future.

Glanbia Meats
The recent management buyout of the Glanbia Meats division of Glanbia Plc is a prime example of CABL working effectively. This Irish quoted company was an asset-rich capital intensive business and considered ‘non-core’ by its plc parent. It had also undergone some significant business interruption by way of a fire at one of its main manufacturing plants. Glanbia plc therefore offered the business for sale to its Management Team, lead by Jim Hanly who acquired the business (now trading as Rosderra Irish Meat Group Limited).

Having had a long established relationship with the Glanbia business, Bank of Ireland was asked to structure a funding package to support the acquisition, the on-going working capital requirements and the capital expenditure requirements to grow and develop the business. They identified CABL as being the most appropriate funding structure to support the specific requirements of this business given the factors referred to above and Bank of Ireland Corporate Banking Ireland introduced Burdale to the Management Team. A multi-million Euro CABL facility was put in place, the deal completed within a six week timeframe and the business is now funded by Burdale with the Dublin Leveraged Team at Bank of Ireland Corporate Banking Ireland providing the full banking services to Rosderra Meats.

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