Financing mechanics
Who Does What in ABF
Draft for editorial review. Technical and final editorial approval are pending. Examples with invented numbers are labelled fictional.
Map functions, then map firms
The fastest way to get lost in a first financing is to organise your thinking around company names. Firms move between roles, one legal entity can perform several functions, and the entity that pitches you is often not the entity that funds you. Organise around functions instead. Five recur in almost every asset-based financing: supplying capital, taking on the borrowing obligation, originating and servicing the receivables, controlling the cash, and producing the numbers everyone relies on.
Once you can name who performs each function in your structure, most process confusion resolves. You know who to call about a funding delay, who to call about a payment application error, and who has to approve a change to a definition. You also know which questions are commercial, which are operational and which need counsel.
A handful of names recur in the documents and are worth defining once. An arranger structures and places the financing. An agent acts for one or more capital providers under the credit documents, administering mechanics and applying the instructions it receives. A trustee holds rights or security for the benefit of specified parties under a trust or security document. A calculation agent computes defined amounts, such as interest or collateral figures, on the contractual cycle. An allocator decides how an investor's capital is divided among strategies, managers and funds. Your structure may include none, some or all of these, one firm can hold several of them, and holding a role does not by itself mean holding credit risk.
Capital supply is layered
When a private fund is your provider, at least three distinct parties sit behind the word investor. Investors purchase interests in a fund entity, and the fund's adviser manages its investments. Keep four things separate in your notes. The manager runs the strategy and staffs the deal team. The fund is the entity whose money is at stake. The investors hold interests in that fund. And you, the borrower or seller, sit outside all three with a contract against one of them.
The practical consequence is that a manager's overall scale tells you very little about your transaction. What matters is which vehicle is investing, what that vehicle can hold, and how it reaches cash when your funding date arrives. Those questions are worked through in credit funds and private capital, and they belong in the first substantive call rather than the fifth.
Capital supply can also be layered above the fund. A vehicle may itself borrow, using a subscription line that relies on uncalled investor commitments, or a NAV facility assessed against the value and cash flows of its existing investments. That upstream borrowing does not change your draw conditions, but it does sit inside your counterparty's liquidity. Back leverage covers what it changes and what it does not.
Who signs, and what a separate entity does not settle
In many structures the borrower is not the operating company. A special purpose vehicle holds the financed receivables and grants a security interest over them, while the operating company sells receivables to that entity and often provides representations, repurchase obligations and other undertakings. Forming the entity does not by itself make the assets remote from the operating company's insolvency. That analysis depends on the documents, the capitalisation, how the entity is actually run, whether the transfer is respected as a sale, and the governing law. Ask counsel what specifically supports it in your structure rather than assuming a conclusion from a diagram.
Read the signature pages with this in mind. The interesting question is not who signed but who owes what. A representation given by the operating company about receivables held in a separate entity is still an operating-company obligation, and a repurchase trigger reaches your balance sheet even when the assets sit elsewhere. Deal anatomy walks through how these documents fit together.
Who services, and who could take over
The servicer collects payments, communicates with obligors, manages delinquency and produces the reporting everyone else relies on. Whether that is you or an appointed firm is a structural choice made in the documents. If it is you, the provider is underwriting your operations as much as your credit policy, which is why servicing systems, staffing and payment-application logic take up so much of diligence.
Where a backup servicer is appointed, read the engagement rather than the label. Terms such as cold or warm standby describe a posture, not an obligation. What matters is whether the backup receives usable data, how often that data is tested, what deadline applies to a transfer, and how it is compensated. A rehearsal that surfaces a broken field mapping is cheap. Discovering the same problem during an actual transfer is not.
Who controls the cash
Collections have to land somewhere, and the account arrangements are a separate layer from the security package. Account control can operate before any default, through arrangements with the account bank, while enforcement rights over the receivables themselves are conditional on the events and procedures written into the documents. Confirm the physical path: where obligors pay, how quickly funds move, who can direct that account today, and what changes on a specified event.
The order in which cash then leaves the structure is the payment order, and it is where your economics actually get decided. The waterfall follows one fictional month of collections through fees, senior interest, principal and reserves, and shows what changes when a cash-trap trigger applies.
Who bears which risk
Exhibit 1
Functions, controls and the question to ask early
| Function | Commonly performed by | What that party typically does under the documents | Question worth asking early |
|---|---|---|---|
| Supplying capital | A fund vehicle, a bank or another purchaser | Advances funds when the conditions in the documents are satisfied | Which entity funds, and what must be true on the funding date? |
| Taking the borrowing obligation | A special purpose vehicle, with support from the originator | Performs the entity's contractual obligations to acquire, hold, dispose of and report on the assets, acting through authorised signatories and appointed parties | Which obligations run back to the operating company? |
| Originating | The operating company | Credit policy, underwriting and volume | How are policy changes notified and consented to? |
| Servicing | The originator, or an appointed firm | Collections, delinquency handling, payment application and reporting, as scoped by the servicing agreement | How are servicing duties, fees and replacement documented? |
| Standby servicing | A backup servicer, where appointed | Prepares to perform specified duties if a trigger occurs | Has a transfer been rehearsed using the actual data file? |
| Cash control | Account bank under agreed arrangements | Executes the instructions it is authorised to accept; the right to give those instructions sits with whichever party the account documents name, which may be an agent, a secured party or the borrower | Who can give instructions today, and what changes on a specified event? |
| Producing the numbers | The originator, sometimes with an agent or verification party | Prepares the collateral calculation the other parties rely on | Who signs the certificate, and what happens if it is wrong? |
The last row deserves attention. A borrowing base certificate is usually signed by a named officer, and an inaccurate certificate can carry consequences well beyond correcting the arithmetic. Decide early who owns that file, who reviews it, and what evidence sits behind each line.
The entity quoting you may not be the entity funding you
Ask three questions in the first call and write down the answers. Which legal entity will be the counterparty on the documents? What has to be true, procedurally and financially, for that entity to advance on a given date? And who inside the organisation approves an amendment once the facility is live, with a realistic sense of how long that takes? If you need an amendment later, a slow or opaque approval process is a real cost, and it never appears on a term sheet.
Roles overlap more than the labels suggest
Resist the idea that banks, insurers and funds occupy fixed, exclusive positions. The same institution can lend against a pool, purchase receivables outright, finance another provider, or invest in a vehicle that does any of those things. These labels are descriptive shorthand rather than exclusive legal categories. Originators fund each other too, through purchases and repeated-purchase arrangements, which is one of the routes compared in warehouse facilities.
So classify counterparties by behaviour rather than by type, and only on what you have actually confirmed with them. Does this party want to hold receivables or lend against them? Does it need a formula, a rating, a specific asset form, or none of those? Does it decide in one committee or three? Those answers tell you more about process length and structural requirements than a sector label does.
Putting the map to work
Before your next capital conversation, draw your own version of Exhibit 1 with real names in the second column and blanks where you do not yet know the answer. The blanks are your agenda. Cash control, servicing capability and who produces the collateral file are worth closing first, because each one shapes the documents that follow.
Then sequence the work. Confirm the funding entity and its conditions before you negotiate pricing, because the conditions determine whether pricing is ever reached. Confirm the servicing and reporting answer before diligence, because it is the part you cannot fix quickly. Getting to close covers that sequence in operational detail.