Market Overview

Fitch: U.S. ABL Facilities Demonstrate Full Recovery in Bankruptcy

CHICAGO--(BUSINESS WIRE)--

U.S. asset-based lending (ABL) facilities present in a defaulted issuer's capital structure demonstrated complete recoveries in a bankruptcy scenario, according to a new Fitch Ratings report.

Fitch reviewed 12 recent U.S. bankruptcies - five liquidations and seven reorganizations - where the debtors' pre-petition capital structure included ABL facilities. The outcomes validate full recovery prospects for ABL facilities regardless of whether resolution occurred via a liquidation or going-concern route.

Fitch attributes these recovery outcomes to a mix of three key factors: 1) the over-collateralized status of pre-petition ABLs; 2) a security interest in liquid collateral that was much sought-after by debtor-in-possession (DIP) lenders as well; and 3) lender dominion over cash which helped reduce the ABL balances (or claim size).

The report also delves into related themes such as the role of liquidators that submit equity-bids in bankruptcies and the unique advantages bestowed by the cash dominion feature both before and following a bankruptcy event.

In addition to the bankruptcy analysis, the report explains how these empirical observations are integrated into Fitch's recovery methodology for ABL-inclusive capital structures using worked examples. The objective of Fitch's methodology is to assign recovery ratings to debt based on recovery prospects in a potential bankruptcy scenario. The appendix of the report provides a general overview of the basic concepts and the unique structural features of an ABL.

The full report 'Rating Asset-Based Lending (ABL) Facilities' is available at 'www.fitchratings.com.'

For more information, visit: 'www.fitchratings.com/usleveragedfinance'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Covenant-Lite Loans', Nov. 26, 2012;

--'Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries', June 7, 2012;

--'Road to Recovery Ratings', Feb. 13, 2012;

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers', Nov. 13, 2012.

Applicable Criteria and Related Research: Rating Asset-Based Lending (ABL) Facilities (Recovery Outcomes and Analysis for ABL-Inclusive Capital Structures)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698330

Analysis of U.S. Corporate Pensions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365

U.S. Leveraged Finance: Road to Recovery Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=669429

Pension Contributions on Upswing

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=670510

Covenant-Lite Loans: Asset- Based Lending and Its Impact on Covenant-Lite Loans

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695798

Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=676042

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Ruchira Dabas, +1-212-908-0244
Senior Director
Fitch, Inc.
One State Street Plaza,
New York, NY 10004
or
Mike Simonton, CFA, +1-312-368-3138
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

 

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