Borrowing Base Haircuts on Commingled Stock under Restructuring Moratoriums
Restructuring moratoriums accelerate borrowing base haircuts on commingled inventory as lenders enforce title reserves and statutory stay exclusions.
Field Warehouse Agreement
Meaning
A legal contract establishes a secure, third party warehouse on the premises of a borrower to hold collateral for a secured loan. Through a field warehouse agreement, a specialized collateral management firm assumes physical custody of the borrower’s inventory and issues warehouse receipts to the lending bank. This arrangement allows the borrower to access financing while the lender maintains physical security over the assets, reducing the operational burden of shipping inventory to a distant public warehouse.
Custodial Control
The designated warehouseman must isolate the collateral from the regular operations of the debtor. This physical separation prevents unauthorized removal of raw materials or finished goods without the prior written consent of the lender. Security personnel and fenced areas are used to maintain strict control over the site.
Inventory Valuation
Receipts are issued only after the quantity and quality of the goods have been verified by the independent custodian. Under a field warehouse agreement, the value of the stored goods is tracked continuously to ensure the borrowing limit is never exceeded. This verification protects the lender against fraudulent inventory reporting by the borrower.
Lien Perfection
Securing inventory through a third party reduces the risk of competing creditor claims during insolvency proceedings. Banks rely on these agreements to bypass the operational challenges of moving large volumes of industrial goods to offsite storage locations. This method provides a cost effective way to manage asset based lending risk.