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Asset-Based Lending Documentation Points
Our previous newsletters have presented data on certain key points in asset-based loans documented by Goldberg Kohn. To update this data for the 12-month period ending June 30, 2025:
Springing Covenants: About 45% of deals had springing covenants, while the remainder had covenants that were tested periodically throughout the term of the loan.
Reserve and Eligibility Criteria: Nearly all deals allowed for discretionary (as opposed to fixed) borrowing reserve criteria, subject to customary conditions on determination of reserves. Most did not require prior notice for implementing reserves (only a third of deals had an affirmative prior notice requirement). As it pertains to eligibility criteria, the vast majority of deals (85%) also allowed for lender discretion in determining eligibility.
Borrowing Base Certificate Delivery: The majority of deals required only a monthly borrowing base absent a trigger event – with only 30% of deals requiring a weekly borrowing base certificate at closing.
EBITDA Addbacks: Overall, very few ABL deals allowed for synergies addbacks to EBITDA, with only about 15% contemplating a synergies addback.
SOFR Credit Spread Adjustment (“CSA”): Less than 30% of deals included a CSA. Further comparing this to the previous 12-month period (ending June 30, 2024), not surprisingly, there is a significant difference – in the previous period, 75% of deals included a CSA. Cash flow transactions also reflected a similar change, though a lower share of deals overall had a CSA. Less than 10% of deals had a CSA in the period ending June 30, 2025, compared with about 35% of deals in the 12-month period ending June 30, 2024.
Evolution of Cooperation Agreements
With the increasing frequency and sophistication of liability management transactions, cooperation agreements emerged as a way for lenders to protect themselves from borrower tactics that rely on negotiating with a certain group of lenders to the disadvantage of the other lenders. Cooperation agreements have become increasingly common, with some sources estimating that 45 cooperation agreements were entered into in 2024, up from an average of four per year between 2018 and 2023. As the frequency of LMTs and cooperation agreements has increased, the following recent trends have emerged:
Anti-Cooperation Agreement Provisions: In recent months, some borrowers and private equity firms have attempted to negotiate creative voting provisions that would prevent creditors from entering into a cooperation agreement. Bloomberg Law and Covenant Review have both reported on deals where restrictions were added to limit voting rights of any single holder unless such restrictions are waived by the borrower, or where a specific covenant and representation was added stating that no lender may enter into a cooperation agreement or similar agreement. In some cases the language has been flexed out, but in others it has remained in the credit agreement through the syndication process.
Weaponization of Co-Ops: Though cooperation agreements are ostensibly put in place as a way for lenders to protect against LMTs, in many cases cooperation agreements may be used to the of detriment lenders, particularly those with a smaller hold. The structure of cooperation agreements has shifted to become more exclusive, with some recent agreements structured to stop accepting members once they reach 50.1%. In addition, transactions between lenders party to a cooperation agreement and a borrower are often “tiered,” with certain of such lenders receiving preferred treatment based on their position and whether they are part of the steering committee, including additional fees and a first chance at new financing opportunities for the borrower. The tiered structure in many cases allows certain lenders to more aggressively negotiate in a workout scenario.
Post-Serta LMT Developments
In Goldberg Kohn's 2024 year-end update, we reported on the Fifth Circuit decision in the Serta Simmons LMT dispute. Attributing a narrow meaning to the term “open market purchase,” the decision was generally hailed as a victory for minority or excluded lenders, though the decision does not appear to have discouraged borrowers from entering into LMTs (and in some cases new and creative forms of LMTs). Notable developments post-Serta include:
Vote Rigging: A January ruling from the U.S. Bankruptcy Court for the Southern District of Texas more directly addressed the tactic of “vote rigging” sometimes used in LMTs. A 2022 LMT effectuated by aerospace supply company Incora involved a collateral release under its secured indenture. The collateral release required a two-thirds vote, which Incora obtained by issuing additional notes (via a simple majority amendment) to obtain the necessary vote. The transaction was sequenced such that the additional notes were issued to the participating noteholders and, automatically and immediately after such additional notes were issued, the now-supermajority holders agreed to release the collateral, and the borrower agreed to exchange the participating lenders’ notes into new super-priority first lien debt. Notably, the amendment provisions in the indenture prohibited modifications that "had the effect of" causing the release of collateral without the requisite vote. In a detailed analysis, the bankruptcy court determined that, because the issuance of additional notes and the release of the collateral were part of a single transaction, the initial issuance of additional notes “had the effect of” releasing the collateral and should have required a two-thirds vote. While this is another win for excluded lenders, since this decision, LMT structures have emerged that appear to be designed to avoid the decision, specifically structures that (1) rely on “amend and extend” provisions in a credit agreement to move certain lenders into a different class and effectuate changes through class voting, and (2) effectuate an incremental loan and a collateral release or other amendment on different days to attempt to avoid a finding that they are part of the same transaction.
“Omni” Blockers and Override Provisions: One creative response on the lender side to the proliferation of different LMT structures has been the incorporation of various “blocker” provisions in credit agreements. While J.Crew, Serta and Chewy[1] blockers have become relatively common provisions in credit agreements, in recent months some lenders have included broad “omni-blockers” in an attempt to prohibit a number of different LMT variations with a single standalone covenant, generally in the context of an amendment to an existing distressed deal. These “omni-blockers” have included covenants that impose restrictions on certain senior financings and other related transactions, unless all lenders are offered the opportunity to participate pro rata in the transaction on the same economic terms, and covenants that prohibit the borrower from making any investment, sale, transfer or disposition of assets or restricted payment in connection with a defined “Liability Management Transaction.” These provisions are certainly not commonplace, but Goldberg Kohn continues to monitor the market and consider how and when to adapt certain new market terms.
This newsletter is provided by Goldberg Kohn's Commercial Finance and Bankruptcy & Creditors' Rights practices. The attorneys in these practices collaborate to represent a diverse group of banks, commercial finance lenders, providers of mezzanine loans and other institutional lenders engaged principally in middle market lending operations. Goldberg Kohn is known for the depth of its practice, providing practical legal guidance, efficient staffing, and ability to facilitate smooth closings.
If you have any questions about this newsletter, please contact our Director of Knowledge Management and Innovation, Laura Jakubowski, or the Goldberg Kohn attorney with whom you normally consult. The information contained herein is provided for general information purposes only, and for review and use only by the direct recipient of this newsletter. The information contained in this newsletter is not intended to be and should not be relied upon as legal advice.
[1] Generally, these blockers are characterized as follows:
A Serta blocker includes language that requires unanimous or all affected lender consent for subordination of the debt or liens, sometimes with the caveat that subordination is permitted if all lenders are offered the chance to participate pro rata in the related new financing.
A J.Crew blocker includes language prohibiting the transfer of (or ownership by) unrestricted subsidiaries of certain assets. This most often covers intellectual property, but the types of assets covered and the way to design the blocker needs to be analyzed carefully in the context of the borrower’s business and key assets.
A Chewy blocker includes language that prohibits the release of the guarantee of an entity that becomes an excluded subsidiary because it is not wholly owned, unless the underlying transaction meets certain criteria.
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