Enforcing Commercial Bailee Waivers in Asset Based Lending Facilities
Executed commercial bailee waivers subordinate statutory warehouse liens, preserve borrowing base liquidity, and guarantee ninety days of liquidation site access.
Credit Facility Covenant
Meaning
A contractual promise in a loan agreement requires the borrower to perform specific actions or refrain from others. This credit facility covenant serves as an early warning system for the lender by setting boundaries for financial health and operational behavior. Failure to maintain these standards results in a technical default even if the principal and interest payments are current.
Compliance Boundary
Financial ratios define the limits of acceptable risk for the lender. A common credit facility covenant might require a company to keep its debt-to-equity ratio below a certain level. Another might mandate a minimum level of working capital to ensure the business can meet its short-term obligations.
Performance Metric
Measurement of these obligations happens through periodic financial reporting. The borrower must submit certificates signed by a high-ranking officer confirming that no breach of any credit facility covenant has occurred. These documents provide the data needed to calculate the ratios defined in the loan documentation.
Breach Consequence
Violating a term gives the lender several options for remediation. They might choose to ignore the breach, charge a higher interest rate, or accelerate the loan and demand immediate repayment. Negotiation usually follows a breach as the borrower seeks a waiver or an amendment to the agreement.