The introduction of the Personal Property Securities Act 2009 (Cth) (PPSA) from
January 30, 2012 has also had a significant
impact on the growth of ABL in Australia.
The PPSA is based, in a large part, on
Canadian legislation and Article 9 of the
U.S. Uniform Commercial Code. North
American asset-based lenders have taken
significant comfort from the familiarity
of the PPSA regime in terms of obtaining
perfected security interests in the kinds
of collateral which form the backbone of
ABL transactions – accounts receivable,
bank accounts and inventory.
ABL facilities can and have been used
in Australia across a broad number of
industries including retail, online directo-ries, agriculture, mining and plastics and
have proven to benefit both mid-sized
and larger companies. Given this inherent flexibility and the benefits outlined
above, it is easy to see why ABL is growing in Australia at a fast pace.
The Top Five Issues for Asset-Based Lenders in Australia
The top five issues that need to be
considered by asset-based lenders in the
context of Australian transactions are:
( 1) What borrowing/guarantee structure
will be used?
( 2) All-assets security or specific-asset
( 3) How will the asset-based lenders
obtain “control” over ABL priority collateral?
( 4) What priority security interests does
an asset-based lender need to consider?
( 5) What rights does a supplier on “
retention of title” terms have?
Borrowing and Guarantee Structures
With many businesses in Australia owned
by global organisations headquartered
in North America or Europe where ABL
is very common, there is a strong trend
towards including the Australian opera-
tions into the global borrowing base
to increase the available leverage and
borrowing capacity. In many cases, the
Australian operations are substantial
and have warranted their own distinct
tranche and a separate Australian
There has been a significant increase in the
recent past in the use of ABL in Australia
across a broad range of sectors, often
as part of U.S.- or London-led global ABL
financings. Many of these global ABL facili-
ties are coupled with either term loans or
note issuances and have been used with
great success for financing acquisitions by
both companies and private equity firms.
Traditional borrowing-base financing
has been offered by many Australian
financial institutions for some time.
However, the entry of the large North
American banks to the Australian ABL
market is now a very noticeable trend
with the issues discussed in this article
being relevant to global ABL transactions
The Growth of ABL in Australia
ABL has become a mainstream lending
product and it has expanded its global
reach from North America to include
London, Europe, Asia and Australia. Sponsors have become increasingly aware that ABL offers significant
benefits when compared to cash-flow
financing including the following:
◗ The price differential in the current
market favors ABL structures in comparison to secured cash-flow lending.
◗ The ABL product offers flexible revolving financing which can flex with the
seasonal or operational requirements
of the borrower.
◗ Cash-flow-based financings generally
include one or two financial covenants,
including a senior debt or total debt
to EBITDA covenant. In contrast, ABL
facilities will include only a fixed-charge
coverage covenant (in many cases on
a springing basis where the borrower’s
unused loan availability falls below an
agreed threshold amount).
◗ A borrower can leverage off its global
business by including global assets in
the borrowing base.
Market forces in the U.S., combined
with increased robustness of the U.S.
economy, increased M&A activity and
the growth of ABL in London and Europe,
have had a significant impact on the use
of ABL in Australia.
WHY HAS ASSET-BASED
LENDING BEEN GROWING
SO RAPIDLY IN AUSTRALIA?
WHAT ARE THE TOP FIVE
ENTITIES AND COLLATERAL
IN AN ABL TRANSACTION?
A PARTNER WITH
IN SYDNEY, PROVIDES