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:
- The over-collateralized status of pre-petition ABLs;
- A security interest in liquid collateral that was much sought-after by debtor-in-possession (DIP) lenders as well;
- 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.
The cases covered by the Fitch report included:
- Liquidations: The Bombay Company, Circuit City Stores, Eddie Bauer Holdings, Gottschalks, and Linens ‘N Things.
- Going Concerns: Boscov’s, Delta Airlines, Visteon, Spectrum Brands, Nebraska Book Company, Delta Petroleum and Source Interlink Companies.