Page 8 - MUFG Spring 2021

We don't yet have a line of sight into what the economic rebound will look like. It's clear that working capital needs have declined materially during the pandemic. How quickly they rebound is yet to be seen. However, borrowers with ABL structures should be well positioned to continue to weather the ongoing impacts of COVID-19 and be well positioned to support growth once the crisis is over.
Q How early do you begin a conversation with a customer looking to convert an existing credit facility into an asset-based credit facility and how do you structure that conversation? Is it best to be proactive?
A Absolutely, the best advice I can provide to any potential borrower is to be proactive. They know who their key customers are and if their customers are being impacted. Now, 9 months into the pandemic, they should have a clearer line of sight into how their business is rebounding, how A/R collections have trended, etc.
The key to survival in any crisis is liquidity and availability of liquidity. If in a cash burn situation as a result of the economic impact of the pandemic, it is critical to project liquidity and know how long you can survive at current sales and expense levels before you trip a covenant. Be proactive with your bankers and determine if an ABL facility would be a better fit. Be realistic but conservative in your projections. Think beyond the pandemic. Is the structure of your banking arrangement appropriate post pandemic. Will it allow you to take advantage of market opportunities? Will there be consolidations in your industry? All of these things should be considered in determining if an ABL structure is right for you. But its critical to have those conversations early and often.
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MUFG TRANSACTION BANKING AMERICAS GROUP / SPRING 2021