Transaction Type: Specialized Finance field exam performed on a commercial finance company that provides small asset-based lines of credit and invoice purchasing facilities to commercial borrowers. The exam was performed for a major lending institution that, through its asset securitization conduit, provides a $64.5 million liquidity facility to the finance company’s bankruptcy-remote, special-purpose corporation. The liquidity facility is supported by the asset-based loans and purchased receivables of the special-purpose corporation.
Significant Finding: The field exam’s testing showed that the servicer report submitted to the bank is not being prepared in accord with the loan documentation. This documentation states that the eligible conduit asset-based loans are to be included in the servicer report at the lesser of (a) the unpaid principal balance, or (b) the sum of 85% of net eligible accounts receivable plus 50% of the obligor’s net eligible inventory. The examiners identified that the borrower is pledging as eligible loans many accounts that are in an over-advanced position for a significant period. These are not eligible for collateral reporting purposes. Impact on Transaction: Based on the finding, the collateral generated availability, per the latest servicer report that the borrower submitted, is overstated. The borrower shows excess availability of $3,531M while the adjusted availability net of the over-advances is negative $6,089M. Thus, the bank terminates the liquidity facility
|
