drum. Politically sound, economically
vital, yet its organic laws make asset-based lending a challenge. Availability
gets constrained by factors such as
retention of title and reserves for the
possibility that an administrator may
become involved. Clients are frustrated
when facing the much-reduced pro-forma borrowing base. Some lenders
have just started making asset-based
loans in Germany, but I remember
structuring our first German tranche
back in 1993. The transaction involved
the combination of two market leaders
in the industrial equipment space, and
we were able to offer not only accounts
receivable and inventory financing, but
also term loans against machinery and
You speak of client disappointment.
Which countries are the most frustrating for borrower and lender?
Mexico has been a frustration for many
U.S. companies with investments there.
Uncertain outcomes in times of distress
have been the biggest barrier to offering
ABL locally. Even though the Commercial
Finance Association has been proactive
in trying to demonstrate to the local
authorities that legal and practical
certainty can be beneficial to borrowers by increasing access to credit, there
remains little incentive to push the
envelope at the moment. I will say that
there have been a handful of transactions recently that have creative “
accommodations” for specific borrowers, but
it may be a while before one can offer
Mexican tranches with confidence.
France, Italy and Spain are the most
puzzling to the borrower community.
The fact that they are members of the
European Union does not allay the need
to be comfortable with the local legal
framework necessary to make a secured
loan. Their socially oriented laws and
the attitudes of the judiciary are not
supportive to this kind of lending.
As to need, China is going to be on
people’s minds now and in the future.
I cannot predict at what point the ABL
community will be comfortable lending
in China against local collateral of any
type. ABL lenders will need to make
a significant investment in the legal,
business and infrastructure to man-
age a portfolio of loans in that market.
It may be a long time before there is
enough judicial experience for Western
lenders to make true asset-based loans
Today’s marketplace is very different
from those early days. What was the
Although the basic blocking and tackling
of a one- or two-country sub-line to a
U.S.-originated global ABL remains vibrant, the biggest and most exciting development has been the evolution of the
senior ABL in a deep capital structure.
Some would call this the embracing of
the capital markets in the international
ABL product, and the leaders have been
Bank of America Merrill Lynch, JPMorgan
Chase and Wells Fargo. Barclays Capital
and Deutsche Bank have also been active amongst the non-North American
The driving force to this multi-level
capital structure has been the desire
of the private equity sponsor community to generate as much low-covenant
senior ABL as possible. Deep capital
structures involving various capital
markets tools such as Term Loan Bs,
notes and high-yield bonds seek access
to liquidity globally. Multi-jurisdiction,
multi-currency ABL meets that need.
For you, was there a deal that was a
The 2012 ABL refinancing for MRC Global
was an important development. The
company was private at the time, following a private equity buyout of McJunkin
Corporation and Red Man Pipe. They had
acquired a U.K. company, Transmark,
that was truly global. Their ambition
was to generate as much “global” availability in as many countries as possible.
Their CFO and treasurer were important
catalysts to change for the marketplace.
They understood that many of their
domestic lenders would be “newbies”
to international ABL or even some of
the countries. As an issuer, MRC enjoyed
the greatest number of countries ever
brought into one transaction simultane-
ously; and recently it broke new ground
by bringing its newly acquired Norwe-
gian businesses into the transaction.
What has been the activity since then if
MRC was a catalyst?
I think many were inspired by the MRC
transaction. Large deals could clear market and demand for quality ABL assets
would encourage more lenders to get up
to speed with the international issues.
We have seen investors in our deals
ask their law firms to become more
knowledgeable so they could accurately
represent the transaction to their credit
committees. I also believe that the depth
of capital structure has given many lenders, who would not normally offer an
international tranche, the comfort that a
restructuring is more likely than liquidation outside of the U.S.
There have been several landmark
transactions since MRC, including Dell,
Blackberry, JBS, Univar and General Cable.
Do you have any concerns about the
future of the international ABL market?
On the whole, I am extremely optimistic
and believe there is tremendous room
for growth. I am a firm believer that
it is knowledge of the subtleties and
nuances in each country that separates
lenders. However, I am concerned that
one day we may have too many lenders who, having done one deal in one
country, think they are “experts”. I also
feel that, even within institutions, this
could be a problem. International deals
each have their own unique fact pattern
and should be diagnosed, structured
and closed with a deep respect for the
unique issues that each country pos-sesses. TSL
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Linda Jahnke is senior vice president and
marketing manager of the Western Region
of Bank of America Business Capital.