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Security in relation to loan note instruments
Security in relation to loan note instruments

Asset-based lending

Liz Mwangi avatar
Written by Liz Mwangi
Updated over a week ago

As Trine is growing older, we are also growing wiser as a company. Over the years we’ve developed and improved the way we assess borrowers and how we look at risk in order to continue to improve our portfolio performance.

A new way of structuring deals

Throughout time, we’ve learned more about the markets we operate in and how to structure deals in order to retrieve an attractive risk-adjusted return for investors. As a result, we’ve changed the way we structure transactions and have improved and implemented a new way of structuring deals, moving from unsecured loans to secured loans.

The past model was wired to suit the needs of corporate finance and Solar Home Systems (SHS), however, as we move into a new market; Commercial and Industrial Solar, we have adjusted and improved our risk assessment process to suit the needs of all the markets we operate in. As a result, we are moving towards an asset-based lending model to decrease risk and minimize the possibility of delays or defaults.

Using assets to secure the debt

The new way we structure deals today is by using assets to secure the debt. In most cases, this means that if a borrower fails to fulfill its obligations, Trine may seize the asset that was pledged. This could for example mean that Trine would claim a pool of receivables or equipment from the borrower as a form of security if the borrower fails to pay back their loan.

The new transactional structure also takes positive cash flow generation into consideration, requiring borrowers to provide sufficient data that proves the ability to generate enough cash to pay the current, and expected, debt service with Trine in the face of any future volatility.

In comparison, previous loans provided by Trine were senior unsecured loans including a negative pledge preventing the borrower from providing any asset-based security to any other lender.

This did not involve any collateral and meant that if the borrower failed to repay, Trine would, depending on its position towards other lenders, receive a proportion of the amount available for distribution among lenders. This did not allow Trine to easily dictate the process of any restructures or wind-down processes.

The difference between the two is that if a borrower defaults on a loan, Trine and its investors can now rely on the value of a secured pool of assets.

This is one of the steps Trine is taking to reach a performing portfolio and will enable us to maintain a high level of control over the borrower’s assets. In turn, this will give Trine the opportunity to recover more principal and, as a result, a more attractive risk-adjusted return toward you as an investor.

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