Borrowing base
Draft definition. Technical and editorial approval pending.
A collateral-based limit derived from the assets and formula specified in the agreement. It can include eligibility tests, advance rates, concentration adjustments and reserves. The calculation frequency is contractual. Total permitted debt may also be capped by the commitment; subtract existing debt to find additional availability. A shortfall has the remedies and cure provisions set out in the documents.
In practice
In a fictional facility, eligible collateral falls from 9m USD to 8m USD while drawn debt stays at 7.2m USD. The limit becomes 6.4m USD, leaving an 800,000 USD shortfall. That gap reflects eligibility deterioration at a point in time and is not itself a realised credit loss.
Read this in context: Warehouse Worked Example.