Distressed lending

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Distressed lending typically provides credit facilities to borrowers with good cash generation capacity but short-term liquidity issues.

Contents

Liquidity lending versus collateral lending

Distressed loans typically take the form of bridge or Mezzanine capital or similar hybrid structures and often place the distressed lender in a better position than existing common shareholders and lenders with respect to company's assets and cashflow.

Versus asset backed lending ("ABL")

Distressed lending can be contrasted with asset-based lending (ABL). Asset-based lending typically provides collateralized credit facilities to borrowers with high leverage and limited cash flow. In such facilities, the primary focus is on the value and liquidity of collateral, while leverage and cash flow are secondary considerations. [1] Borrowings are limited by the collateral base, which is generally measured by the liquidation value of accounts receivable, inventory, and fixed assets, rather than the borrower’s ongoing cash generation capacity. [2]

See also

References

  1. ↑ Carey, M., & Morris, R. C. (2010). Credit Risk Management: How to Avoid Lending Disasters and Maximize Earnings. New York: McGraw-Hill.
  2. ↑ Skeel, D. A., & Jackson, T. H. (2004). Bankruptcy and Corporate Reorganization: Legal and Financial Materials. New York: Foundation Press.
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