Tripartite Collateral Access Agreements in Distressed Asset Based Lending
Tripartite collateral access agreements enforce landlord lien subordination and define per-diem entry rules to protect ABL borrowing base availability.
Nolv Haircut
Meaning
Percentage reduction applied to the net orderly liquidation value of collateral when determining a borrowing base. This nolv haircut accounts for the expenses associated with a forced sale, such as commissions and professional fees. It creates a safety margin between the appraised value and the amount a lender is willing to advance.
Recovery Estimation
Calculation of the actual cash proceeds available after a liquidation event drives the choice of the discount rate. Applying a nolv haircut protects the financier from market fluctuations and the inherent uncertainty of a quick disposal. Higher rates are typical for specialized equipment with a limited pool of potential buyers.
Appraisal Reliance
Verification through third party evaluations ensures that the starting figure for the calculation is objective. A nolv haircut must be updated regularly to reflect changes in the used equipment market or shifting industrial trends. If the condition of the assets deteriorates, the haircut may increase to compensate for the higher risk of a poor auction result.
This adjustment occurs during the annual survey of the collateral package.
Relationship Dynamics
Connection between the advance rate and the appraised value determines the total liquidity available to the company. Calculating the nolv haircut allows the lender to set a limit that covers the principal even in a worst case scenario. This calculation involves subtracting all projected liquidation costs from the gross appraisal before applying the final percentage.
The result is a conservative figure that dictates the maximum loan amount available to the borrower at any given time.