Anatomy of a Deal

Start with ownership and cash, not price. Before you negotiate a spread, you need to be able to answer two questions without hesitating: who owns the receivables at each moment, and where does every dollar of collections go once an obligor pays. A receivable here just means a contractual right to be paid over time, like the payments due on a consumer installment contract you originated. An obligor is the person or business who owes those payments. If you can trace ownership and cash through the structure, the rest of the negotiation becomes a series of informed trade-offs. If you cannot, you may sign documents that quietly constrain your business.

This page walks through one illustrative US receivables warehouse. Structures differ by jurisdiction, by asset class and by what the parties actually negotiate, so treat this as a teaching frame rather than a template. Everything described below is scoped to the structure being illustrated, not to receivables financing generally. If you are still deciding which kind of capital provider to approach, start with the capital landscape and come back here.

The entities and who does what

A warehouse is a revolving secured borrowing arrangement, which means you can draw, repay and draw again against a pool of assets rather than taking a single fixed term loan. Secured means the capital providers hold a security interest, a legal claim over specified assets that can be enforced if the borrower defaults. That pool of claimed assets is the collateral. Filed agreements tend to organize a small cast of parties, each with distinct duties. The opening parties and role architecture are visible in the amended UACC warehouse agreement dated July 16, 2013 and amended through November 30, 2023 (SEC filing), which is a useful reference because the party distinctions are legible even with commercial terms redacted.

You, the originator. In this illustrated structure, you source, underwrite and originate the receivables, then sell them into a separate financing entity. That sale matters: once it settles, the receivables sit in a different entity from your operating company. Other structures allocate these roles differently.

The financing borrower, a special purpose vehicle. An SPV here is a purpose-limited entity whose permitted activities are confined by its organizational documents, typically to acquiring receivables and financing them. It is the borrower under the warehouse and the entity granting security over the pool. Be careful about what you conclude from its existence. The presence of an SPV does not by itself establish a legal true sale, insolvency remoteness from your operating company, any particular accounting treatment or the absence of recourse to you. Recourse means the extent to which the capital providers can look past the pledged assets to your operating company for repayment. Legal conclusions are for your counsel and accounting outcomes are for your accountants. Neither is settled by negotiating a term or obtaining an opinion.

Capital providers and the agent. One or more capital providers agree to lend up to a stated maximum, on terms set by the documents. An administrative or collateral agent acts for them, receives borrowing requests, processes them under the agreement and holds or directs the security interest. In a single-provider facility the agent and the capital provider are often the same institution acting in two capacities. Read the maximum carefully: available commitment and any optional expansion feature, such as an accordion or uncommitted upsize, are different things, and the second may require consent nobody is obliged to give.

The servicer. Somebody has to bill obligors, collect payments, handle delinquencies and report. In the structure illustrated here, that is you, appointed under the same agreement that governs the borrowing. This is worth pausing on. You are simultaneously the seller of the assets, the equity in the structure and the party collecting the cash, and your servicing obligations are contractual duties you can breach.

Account bank and custodian. Collections are directed into designated accounts at a specified bank, often subject to control arrangements that let the agent direct funds in defined circumstances. A custodian holds the contract files and certifies what it has received. The collateral and security provisions in the UACC agreement (Articles 3, 7 and 8 of that filing) show how collateral, files and accounts get tied into a single package.

Backup servicer. A third party positioned to take over servicing if you cannot perform. Backup arrangements vary in how much data the backup party receives and processes, so read yours specifically. What matters operationally is whether a transfer is actually executable: file formats, delivery cadence and tested data, not just an appointment on paper.

How money moves

Funding is conditional. A representative sequence in this structure:

1. You originate receivables at the operating company.
2. A borrowing request is submitted, identifying the assets and certifying compliance with the agreement. Depending on the documents, this happens before or simultaneously with settlement of the purchase, so the advance and the purchase price can be coordinated rather than the SPV paying first and asking later. Drawing is governed by contract rather than available on demand, and some agreements charge for undrawn capacity.
3. The borrower certifies the conditions, and the capital provider or agent processes the request as the documents require. If the conditions are satisfied, the advance funds.
4. The SPV purchases the receivables under the sale agreement, with the purchase price funded partly by borrowing and partly by your equity.
5. Obligors pay into the collection account. Cash is applied under the agreement's allocation rules, not at your discretion.

A fictional worked example

The numbers below are invented for teaching. They are not benchmarks, not drawn from any filing, and not indicative of market terms. Simplify hard: one period, all USD, no day-count or accrual questions.

You purchase $10m of receivables at par. Of that pool, $9m is eligible, meaning it satisfies the contract's eligibility criteria (obligor characteristics, documentation, delinquency status and so on). The advance rate, the percentage of eligible collateral the capital providers will fund, is 80%. The commitment cap is $12m. Starting debt is zero.

Your borrowing limit is the lesser of the cap and the collateral test: min($12m, 80% × $9m) = $7.2m.

So a $12m commitment supports $7.2m against a $10m purchase. You fund the remaining $2.8m with equity, before any separate reserves, fees or expenses the documents may require. The $1m of ineligible receivables is still an asset the SPV owns in this fictional pool. It simply carries no borrowing value.

Note what this simplified arithmetic leaves out. Real borrowing base calculations often include reserve requirements, concentration limits that haircut over-represented exposures, and other deductions, any of which can push usable capacity below eligible collateral times advance rate. The lesson that survives the simplification is that committed capacity is a ceiling rather than cash.

Now take a later snapshot. Eligible receivables fall to $8m. Debt is still $7.2m with no principal repaid, and the cap is unchanged.

New limit: min($12m, 80% × $8m) = $6.4m. Against $7.2m outstanding, that is a $0.8m shortfall.

Two points about the shortfall. First, assets moving out of eligibility is not the same as a realized credit loss. Receivables can become ineligible for documentation defects, delinquency aging, concentration breaches or other contractual reasons, none of which necessarily means the money is gone. Second, what you can do about it is document-driven. Cure mechanics, timing and permitted remedies vary, and injecting new equity does not by itself repair the test unless it is applied the way the contract requires, whether that is paying down debt, contributing additional eligible receivables or funding a reserve.

Revolving versus amortizing

Warehouses commonly have a revolving period, during which collections can be recycled into new eligible receivables subject to compliance, and an amortization period after it ends or after a trigger event, during which collections are directed toward repaying debt. The DT Warehouse II sections above show allocation rules that differ before and after the revolving period.

The practical consequence is that "we have cash in the collection account" and "we can use that cash" are different statements. Whether funds are available to buy new assets, must be applied to the debt or can be released to you depends on which state the structure is in and what the allocation provisions say. Do not assume excess cash can leave.

Checklist before you sign

1. Map every account and know who controls each one and under what conditions.
2. Read the eligibility criteria as an operational spec and confirm your systems can test each item at the loan level.
3. Model your borrowing limit using the full contractual formula: the commitment cap, the advance rate against eligible collateral, and every reserve, concentration adjustment and deduction the agreement applies. Separately model the equity you need at your expected origination pace.
4. Distinguish the available commitment from any accordion or uncommitted expansion, and confirm what consents an increase would require.
5. Trace collections through the allocation provisions in both revolving and amortization states.
6. Identify every condition precedent to funding and confirm you can satisfy each on the required notice.
7. List your reporting deliverables, their frequency and the consequences of late delivery.
8. Confirm what triggers end the revolving period, and stress your own numbers against those thresholds.
9. Understand cure rights: what counts as a cure, how long you have, and who decides.
10. Test backup servicing transfer requirements against your actual data, including a live file production in the required format rather than a written confirmation that you could produce one.
11. Ask counsel directly what the documents do and do not achieve on true sale and recourse, and ask your accountants separately about accounting treatment, rather than inferring anything from the SPV's existence.

Most of this work happens before the first draw, and it is cheaper then. Once the facility is live, the eligibility criteria are running against your book every reporting date, the allocation provisions are directing your cash, and the questions you did not ask during negotiation become questions you answer under time pressure. Read the documents as an operating manual, because that is how they will function.