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.
Tripartite Collateral Agreement
Meaning
Commercial contract between a borrower, a lender, a warehouseman and a logistics provider governing the control of pledged inventory. This tripartite collateral agreement establishes the duties of the warehouse operator to follow the lender instructions while holding the borrower goods. It provides a framework for the secure storage and monitoring of assets used to back a credit facility.
Direction Priority
Instruction regarding the release of stock must come from the party holding the security interest rather than the owner of the goods. Under a tripartite collateral agreement, the warehouse operator acknowledges that they hold the items as an agent for the lender. This arrangement prevents the borrower from depleting the collateral without the financier knowledge.
Periodic Reporting
Verification by the third party provides the lender with an independent view of the quantity and quality of the stock. A tripartite collateral agreement often includes provisions for unannounced inspections and regular cycle counts. These checks confirm that the inventory remains on site and in saleable condition.
The warehouse manager is responsible for reporting any damage or spoilage that could impact the value of the loan security.
Notification Duty
Announcement of a breach in the loan terms changes the warehouse role from a storage provider to a liquidator assistant. If the lender invokes its rights under the tripartite collateral agreement, the warehouse must freeze all movement and await further orders. This control allows for an orderly recovery of the value through a sale to a pre approved buyer or a public auction.
The agreement stays in effect until the lender formally releases its claim in writing and the underlying debt is fully satisfied by the borrower.