The All-You-Can-Eat Borrowing Base

A new trend is reshaping asset-based lending (ABL): the bundling of fixed assets into the borrowing base at the same pricing as traditional working capital assets.

Sophisticated debt advisors, capitalizing on lender consolidation, are trying to create new asset-based lending borrowing base models that treat all assets the same.  More and more advisors are trying to push for a buffet-style borrowing base: one price with everything included. This trend pushes lenders to value fixed and working capital assets equally.

Borrowing a restaurant analogy, advisors are asking lenders to bundle all assets into a borrowing base certificate (BBC) at one rate—whereas historically, assets had a la carte pricing. In restaurants, "a la carte" means ordering items separately, each with its own price, while a buffet allows self-service with one price for variety. Borrowers want a la carte flexibility with buffet pricing.  A la carte offers more flexibility and customization, allowing diners to select specific items and control portion sizes, whereas buffets often have a wider variety of food and allow for sampling multiple options.    In dining terms, this means ordering filet mignon and lobster for the same price as the salad bar. It’s a clever arbitrage play—and one that lenders, mostly on larger deals, are being forced to consider in the face of competitive pressure and increasingly consolidated deal flow.

Historically, these asset classes were treated and priced differently due to asset-liability matching—working capital turns quickly, fixed assets do not. As a result, working capital assets are revolving and lower priced, while fixed assets are term-based and priced higher. Debt advisors are now asking for fixed assets to 1) be non-amortizing and 2) priced like working capital assets. This mainly applies to large-ticket ABLs with borrowers that often have enterprise value or sponsor backing. Fixed assets typically make up less than 50%—often under 30%—of the borrowing base. It’s a novel approach to get sophisticated lenders to take “secured enterprise value risk” rather than air-ball risk. Fixed asset term loans usually amortize, while borrowing base structures rely on NOLV. Although NOLV can shift with appraisals, it's preferable to the cash strain of regular amortization.

Of course, this strategy isn’t without complications. Fixed assets, such as machinery and equipment (M&E), real estate, and intellectual property (IP), are inherently more complex to appraise, harder to liquidate, and slower to turn.  Traditionally, fixed assets—like M&E, real estate, and IP—were excluded from the working capital borrowing base and priced separately. Fixed assets carry higher risk due to liquidation challenges and the limitations of financing non-working capital assets. Not all ABLs have the same leverage line criteria, though larger lenders typically have fixed asset buckets. The lender finance point alone is a critical one as not all ABLs have the same leverage line criteria although the bigger ones typically do have buckets for fixed assets. However, these often come with lower advance rates and other restrictions. Including fixed assets in a borrowing base adds complexity for lenders: increased risk, potential profit compression, and the chance of breaching finance caps or covenants.

Meanwhile, and as a counterpoint, ABL groups within larger asset managers are growing in scale and sophistication. These lenders are better equipped to manage risk across asset types, leverage internal appraisal capabilities, and navigate hybrid structures. They also understand the trade-offs: while buffet-style pricing may reduce individual asset-level profitability, it increases total loan volume, improves yield through ancillary fees, and provides exposure to stronger credits. In today’s environment, that’s a compelling trade.

Still, even the most sophisticated lenders need safeguards. Annual or semi-annual appraisals, dynamic reserve setting, and tight covenant packages remain critical tools for mitigating risk. Some lenders are introducing tiered advance rates within the “buffet base,” recognizing that not all fixed assets are created equal. Others are incorporating springing amortization triggers or exit fees tied to the fixed asset portion of the loan.

We’re entering a new market cycle marked by a “winner takes all” fundraising landscape and the emergence of larger ABL groups within asset management firms. At the same time, consolidation among investment banks has reduced distribution channels. This shift gives investment bankers more leverage during processes, increasing efficiency—and risk—for lenders. Ultimately, the borrowing base, again at the upper-end of the market, is evolving from a strict menu of defined asset classes to a more fluid and borrower-friendly structure. Advisors and borrowers are pushing boundaries, and lenders must decide whether they’re willing to serve five-star meals at buffet prices—or risk getting left behind.

The all-you-can-eat borrowing base is here. Whether it’s a recipe for innovation or indigestion remains to be seen.

This article was first published on SFNet: https://www.sfnet.com/home/industry-data-publications/the-secured-lender/tsl-express-daily-articles-news/tsl-express-article-detail/the-all-you-can-eat-borrowing-base