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

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;

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