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Asset-Based Lending Hits Record

Asset-Based Lending Hits Record

A recent blog post cited data from a Thomson Reuters study indicating that the number and quality of asset based credit lines is growing.  That is great news, especially for small and mid-sized businesses who are often turned down by their banks and rely on working capital from alternative commercial financing sources to fund a turnaround or rapid growth. The Commercial Finance Association’s largest members show a marked pattern of growth and a decrease in write-offs,  supporting the claim that asset based lending continues to move rapidly into the mainstream and provide alternative commercial financing.


by Karen Kroll, Big Fat Finance Blog, January 20, 2012

Asset-based loans (ABLs), which typically are secured by an asset on the company’s balance sheet, such as inventory or accounts receivable, enjoyed a record year in 2011. The value of ABLs made during the year topped $100 billion, according to data from Thomson Reuters LPC. About 375 deals were completed, or more than during any of the previous seven years. Asset based loans accounted for 18% of the overall leveraged loan market, up from about 10% five years ago.

The bulk — in fact, more than 80% — of the loans were for refinancing. Conversely, the volume of new money deals came close to historical lows, due to drops in buyout financing for mergers and acquisitions, Thomson Reuters said.

The Commercial Finance Association, a trade group for the asset based lending industry, also showed an uptick in loan volume. Based on information received from 20 of its largest members, total committed credit lines grew by 1.5% between the second and third quarters of 2011, continuing a pattern of growth that began in the fourth quarter of 2010. More significantly, new credit commitments jumped by nearly 27% between the third quarter of 2010 and the third quarter of 2011.

The credit quality of the loans also improved. More than two-thirds of lenders reported either a decrease or no change in gross write-offs between the second and third quarters of 2011, the CFA said. This was the fourth quarter in a row in which gross write-offs as a percentage of loans outstanding had declined.

The ABF Journal, an industry publication, identified several dozen deals during 2011 that went for more than $500 million. A few topped $1 billion, including those with Ryerson Inc., a processer and distributor of metals; theme park operator Six Flags; Safeway, the supermarket chain, and Quad/Graphics, a printing company. The deals involving Health Management Associates, Golden Living, Penn National Gaming, and Alere exceeded $2 billion.

These numbers show that asset based lending, once thought of as a last-resort financing option, continues to move into the mainstream as a source of alternative commercial financing.