Negotiation strategy
Economic terms negotiation
Economic terms negotiation
Beyond spread and advance rate, ABF transactions include a range of fees and economic provisions that affect your total cost. These terms are often more negotiable than headline pricing because they receive less scrutiny from investment committees.
Upfront fees
Upfront fees are paid at closing or early in the facility life. They affect your initial economics but do not compound over the facility term.
Origination and commitment fees
| Fee Type | Market Range | First Facility | Expansion/Upsize |
|---|---|---|---|
| Commitment fee | 0.25-1.00% | 0.50-1.00% | 0.25-0.50% |
| Origination fee | 0.25-0.75% | 0.50-0.75% | 0.25-0.50% |
Negotiation approaches:
Credit against unused fees. Request that the commitment fee be credited against the first year of unused fees.
Effective language:
“We request that the 50 bps commitment fee be credited against unused fees during the first 12 months. This aligns incentives for rapid utilization.”
Utilization-based reduction. Negotiate a fee reduction if utilization exceeds targets.
Effective language:
“We propose that if facility utilization exceeds 80% within 6 months of closing, the commitment fee be reduced by half, from 50 bps to 25 bps.”
Upsizing economics. Ensure expansion tranches have lower fees than the initial commitment.
Effective language:
“For any accordion draws above the initial $75M commitment, we request the commitment fee be 25 bps rather than the initial 50 bps.”
Structuring fees
Structuring fees are typically charged by funds or banks with dedicated structuring teams.
| Deal Type | Typical Range | Negotiability |
|---|---|---|
| Template warehouse | 0-25 bps | Push back entirely |
| Bespoke structure | 25-50 bps | Negotiate down |
| Complex multi-tranche | 50-75 bps | Limited negotiability |
Negotiation approach:
Push back if the structure is standard. Structuring fees are appropriate for bespoke deals, not template warehouses.
Effective language:
“This is a standard warehouse structure with no bespoke features. We do not believe a structuring fee is warranted for a template transaction.”
If a structuring fee is required, negotiate for it to be earned only upon successful closing.
Effective language:
“If a structuring fee applies, we request it be payable only upon successful closing and initial funding, not upon execution of the term sheet.”
Legal fee caps
Legal fees can exceed expectations without caps. Get fee estimates into the term sheet, not just the engagement letter.
| Party | Typical Range | Cap Approach |
|---|---|---|
| Lender’s counsel | $50K-$150K | Fixed cap with overage approval |
| Borrower’s counsel | $40K-$100K | Your control, but budget |
| Trustee’s counsel | $15K-$30K | Usually fixed |
Negotiation approach:
Effective language:
“We request that lender’s counsel fees be capped at $75K for initial documentation. Any fees above that cap would require our written approval prior to incurrence.”
For complex negotiations:
Effective language:
“We understand documentation may be complex. We propose a $100K cap with a mechanism: if lender’s counsel believes scope exceeds the cap, they provide a revised estimate within 10 business days and we approve or reject in writing.”
Ongoing fees
Ongoing fees are paid throughout the facility life and compound over time. A 25 bps annual fee over 5 years equals 125 bps total.
Unused and non-utilization fees
| Utilization Level | Typical Fee | Premium Range |
|---|---|---|
| Below 50% | 40-50 bps | N/A |
| 50-75% | 25-40 bps | Standard |
| Above 75% | 0-25 bps | Negotiable |
Negotiation approaches:
Ramp-up waiver. Request a 6-12 month waiver during initial ramp-up.
Effective language:
“We request that unused fees be waived for the first 9 months following closing to allow for normal ramp-up of the portfolio.”
Utilization step-down. Negotiate lower fees at higher utilization levels.
Effective language:
“We propose a tiered unused fee: 50 bps below 50% utilization, 25 bps from 50-75% utilization, and waived above 75% utilization.”
High utilization waiver. Request complete waiver if you maintain high utilization.
Effective language:
“We request that unused fees be waived in any month where average utilization exceeds 80%.”
Administration fees
| Fee Component | Typical Range | Negotiability |
|---|---|---|
| Annual administration fee | $10K-$25K | Limited |
| Monthly reporting fee | $1K-$3K | Limited |
| Trustee fees | $5K-$15K annually | Fixed by trustee |
Administration fees are typically small in absolute terms and not worth significant negotiating energy. Accept reasonable market fees and focus elsewhere.
Amendment fees
| Amendment Type | Typical Fee | Negotiation Target |
|---|---|---|
| Administrative changes | $0-$10K | Push for $0 |
| Covenant modifications | $15K-$35K | Cap at $25K |
| Material amendments | $50K-$100K | Depends on scope |
| Complex restructuring | $100K+ | Per-situation negotiation |
Negotiation approach:
Effective language:
“We request that administrative amendments, including contact information changes, account changes, and similar ministerial matters, be processed at no fee.”
For substantive amendments:
Effective language:
“We request that amendment fees be capped at $35K per amendment, excluding lender’s counsel fees which would be subject to the $75K cap per amendment.”
Prepayment provisions
Prepayment terms affect your ability to refinance, exit, or restructure the facility.
Soft call vs. hard call
| Prepayment Type | How It Works | When Typical |
|---|---|---|
| Soft call | Declining premium (e.g., 1% year 1, 0.5% year 2, 0% year 3) | Most warehouses |
| Hard call | No prepayment allowed during defined period | Term deals, some warehouses |
| Make-whole | Pay NPV of remaining interest | Term financing |
| No penalty | Full flexibility | Some revolving warehouses |
Market norms by structure
| Structure | Typical Terms | Negotiation Room |
|---|---|---|
| Warehouse | Usually no penalty; may have make-whole on early termination | Push for no penalty |
| Forward flow | 30-90 day notice; may have wind-down volume commitment | Negotiate notice period |
| Term ABS | Non-callable 2-3 years; soft call thereafter | Negotiate non-call period |
| Private placement | 1-2 year soft call | Negotiate step-down |
Negotiation approaches
For warehouses:
Effective language:
“We request that prepayment of outstanding borrowings carry no penalty. We accept reasonable notice requirements of 10 business days for partial prepayment and 30 days for full payoff.”
For early termination:
Effective language:
“For early termination of the facility commitment, we request a declining premium: 50 bps in year one, 25 bps in year two, and no premium thereafter.”
Refinancing exceptions:
Effective language:
“We request that refinancing into a facility with the same capital provider, or any successor or affiliate, be excluded from prepayment restrictions and premiums.”
Fee allocation in multi-party structures
When multiple parties are involved, fee allocation affects your economics.
Who pays what
| Counterparty | Who Typically Pays | Negotiable? |
|---|---|---|
| Trustee | Issuer (via waterfall) | Rarely |
| Backup servicer | Issuer (via waterfall) | Rarely |
| Calculation agent | Issuer (via waterfall) | Rarely |
| Verification agent | Split or deal-dependent | Sometimes |
| Rating agency | Issuer (closing proceeds) | Rarely |
| Legal (originator’s) | Originator (out of pocket) | N/A |
| Legal (lender’s) | Often originator | Sometimes |
Negotiation approaches
Lender’s legal:
Effective language:
“If we are paying lender’s legal fees, we request they be capped at $100K for initial documentation and $50K per amendment, with overages requiring our prior written approval.”
Waterfall expenses:
Understand where fees sit in the payment priority and how they affect your residual economics.
Questions to ask:
- Are these fees senior to my residual interest?
- Do they come out of collections before or after interest payments?
- Are there caps on aggregate fees in the waterfall?
Effective language:
“We request that aggregate third-party expenses in the waterfall be capped at $75K annually, excluding trustee and backup servicer fees.”
Economic terms negotiation checklist
Upfront fees:
- Commitment/origination fee benchmarked
- Credit against unused fees requested
- Structuring fee pushback prepared (if applicable)
- Legal fee caps proposed
Ongoing fees:
- Unused fee ramp-up waiver requested
- Utilization step-down structured
- Amendment fee caps negotiated
- Administrative fee reasonableness confirmed
Prepayment:
- Prepayment penalty structure understood
- Refinancing exceptions requested
- Notice periods reasonable
Multi-party:
- Fee allocation understood
- Lender’s legal caps negotiated
- Waterfall expense caps considered
Total cost analysis
When evaluating economic terms, calculate total cost over the expected facility life.
Example: $100M facility, 3-year expected life
| Fee Component | Amount | Timing | Total Cost |
|---|---|---|---|
| Commitment fee | 0.50% | Upfront | $500K |
| Unused fee (20% avg) | 0.35% annually | Ongoing | $210K |
| Amendment (2 amendments) | $30K each | Years 1, 2 | $60K |
| Legal (initial + 2 amend) | $100K + $50K + $50K | Various | $200K |
| Total non-spread costs | $970K |
On a $100M facility with 70% average utilization, $970K in non-spread costs equals approximately 46 bps annually. This is material.
The point: Fees matter. Do not focus exclusively on spread while ignoring the fee structure that adds 40-50 bps to your total cost.