English – The Enterprise Toolbox

The challenges of cross-border Asset Based Lending

stirlingpixel4 — Mon, 26 Mar 2018 15:45:48 +0000

As companies look to expand internationally, many are turning to cross-border asset-based lending as a solution to help enhance liquidity and provide flexibility within their capital structures.

The growth of cross-border or global asset-based loans has increased significantly over the last 20 years, especially as middle-market companies are now accessing global markets to expand their sales or to take advantage of favourable economic and tax benefits overseas.

The principal challenge when raising A.B.F cross-border is typically the legal framework. Each jurisdiction will have its own specific limitations and challenges. For example, lenders may assume that all members of the European Union are favourable ABL jurisdictions, but that may not be the case.

It is prudent to begin each cross-border ABL transaction by analysing a number of key points.

Who owns the assets in the jurisdiction – the foreign subsidiary or parent company?
Does the country allow security over the assets?
What are the limitations in taking security?
Even if the lenders can take security over the assets, can they realise on the assets if an event of default under the loan documents occurs?

In the US for example, the mindset is to take a lien on all assets of the borrowers, to obtain cross-guarantees from all obligors and to rely on the rights and remedies of a secured creditor under applicable US law. This approach will not necessarily work when lending in foreign jurisdictions, and the same is true for the UK.

One needs to explore the legal entity structure that a company may be using. It is also important to consider the location of legal ownership of assets to determine whether the inventory is in the same country as the owner, as well as the location of account debtors to determine where in the world the payments are coming from, and whether the local legal environment can support the financing.

Lenders ability to participate

In addition to the due diligence on the borrower’s operations internationally and analysing the legal structure of the financing, the lender itself will need to analyse its ability to participate in the cross-border facility. This is a key element that is often overlooked. The lender may have an international affiliate or branch that can lend in the specific jurisdiction, and is licensed to do so, but many potential lenders in cross-border transactions do not have separate lending affiliates or branches in foreign jurisdictions. As a result, they must analyse a number of questions with respect to their individual institution.

Are they licensed to lend in the applicable jurisdiction or does the type of lending require a separate licence?
Are any withholding taxes in the foreign jurisdiction applicable to the lender or is there an exemption?
Can the lender lend in the applicable currency?
Can the lender honour its cross-border funding obligations within the timeframe required under the loan documents?

Financing techniques in general differ from country to country. Some jurisdictions will allow the financing of all asset classes, and it may be advantageous to have a blanket lien on all assets in connection with insolvency proceedings in that jurisdiction – for example, the United Kingdom.

Other jurisdictions, however, may require the satisfaction of criteria that is not practically feasible for a borrower. For example, local law in some jurisdictions may require the debtor to be dispossessed of the inventory in order for the lender to be perfected on it. As a result of this, accounts receivable may be the only asset class that will provide increased availability to the borrower in that jurisdiction. Also, as noted above, some lenders may be restricted from lending to a foreign company if they are not licensed there, such as in Singapore.

Future trends in Cross-border ABL

The market continues to expand rapidly, and we live in a global economy now. These are key ingredients for growth in this aspect of ABL financing. The cross-border ABL market, however, is still primarily initiated from North America as its companies have products and needs around the world, but UK and European initiated transactions are increasing rapidly.

More and more lenders are interested in participating in cross-border transactions, whether as a co-lender or an agent on behalf of a syndicate of lenders.

In addition, national and international trade and educational organisations are sponsoring more cross-border seminars in order to educate a broader group of potential lenders and legal counsel. Field examiners and appraisers also have expanded their knowledge base in the cross-border arena, and their analysis is important to lenders in order to understand foreign assets and country-specific borrowing bases and liquidation issues.

Article sources: JP Morgan, Financier Worldwide, Merrill Lynch, PHRD

Global investors set to increase investment in Europe

stirlingpixel4 — Mon, 20 Nov 2017 10:47:13 +0000

Eurozone stability, economic growth main drivers behind investor appetite
74% of investors surveyed recognise Europe’s leadership in sustainability
Investors in China more likely to invest in UK and EU following Brexit
Europe lags US in global market access, innovation and capital market efficiency

The majority of global investors polled in a new survey for the launch of Invest Week believe Europe has become a more attractive investment destination and expect investment to increase.

For the Global Investment Decision Makers Survey, commissioned by Invest Europe, Ipsos MORI surveyed 360 senior-level corporate and financial investment decision makers at companies from the US, China, Germany, the UK and France. It found that over three-quarters of investors in China and 71% of their US peers believe Europe is a more attractive investment destination than it was five years ago. Nine out of ten respondents from China believe investors will increase investment in Europe over the next five years and 74% from the US agree.

Lower taxes should be a priority for policymakers if Europe is to attract more investment according to 43% of investors in France, 38% in the US and 37% in China. The need for better investment incentives was ranked highly by 37% of respondents from the US and China, and 26% in Germany.

“There is clearly robust appetite among global investors for European investment opportunities but policymakers need to consider what more they can do to attract capital,” said Michael Collins, CEO, Invest Europe. “These findings underpin the importance of bringing together European policymakers, investors and entrepreneurs at forums such as Invest Week to discuss how best to harness this interest.”

Europe leads on sustainability

When asked to compare Europe, the US and China as investment destinations, 74% of respondents listed Europe as the strongest performer on its commitment to sustainability and the environment. Almost three-quarters of respondents asserted that sustainability is an important issue in their investment decision making, indicating strong potential for drawing more capital into Europe. Eurozone stability, improved economic growth and higher returns on investment were cited as factors in Europe’s increased attractiveness. This month the European Commission forecast the highest Eurozone economic growth rate in ten years with real GDP growth forecast at 2.2%.

Europe’s strength in sustainability is reflected in the industries in which it is seen as a global leader: 55% of respondents rate the region ahead on energy and the environment, while 44% said Europe leads in finance and insurance. Almost two thirds of investors in China highly regard Europe’s world-leading biotech and healthcare sector.

Europe makes progress on capital markets and innovation

Closer integration of Europe’s capital markets has been a draw for almost half of investors in China and two out of five in the US
While two out of three investors rate Europe as above average for the efficiency of its capital markets, the US leads Europe in this area, underlining the need for the successful delivery of the EU’s Capital Markets Union initiative
Access to global markets is an area where Europe is above average compared to other investment destinations according to 68% of investors
Two out of five respondents picked increased innovation in Europe as a reason for its growing appeal over the last five years, while 36% cited the improved start-up ecosystem. Nevertheless, the US still leads on innovation over Europe and China, reflecting the country’s strength in nurturing tech start-ups
Over a fifth of US respondents would like policymakers to prioritise increased investment in innovation to make Europe more attractive as an investment destination, while four out of ten Chinese investors say closer integration of the EU single market for goods and services could increase Europe’s appeal in future

International investment appetite undimmed by Brexit

With the UK set to leave the EU on 29 March 2019, 58% of respondents from China say they are more likely to invest in the UK over the next five years as a result of Brexit and 47% more likely to invest in the EU. The majority of US respondents envisaged no change to their investment strategies for the UK or the EU as result of Brexit. However, 55% of investors based in Germany and 52% from France say they are less likely to invest in the UK because of Brexit.

93% of respondents in China and 77% from the US agree that EU policymakers are serious about appealing to international investors. French, German and British investors were less positive, with only 43% responding positively from Germany.

Invest Week, spearheaded by Invest Europe, is a week-long programme of events starting today in Brussels, discussing innovation and sustainability in European investment. Invest Europe is the association representing European private equity and venture capital, and their global investors. The full report is free to download from its website, investeurope.eu.