Asset-based Facility Pricing


This practice note discusses pricing strategies in asset-based facilities. The interest rate payable in smaller asset-based facilities may be a fixed margin of a number of basis points above a base rate, usually the prime rate announced by a major financial institution. Or it may be a fixed margin above the one month or three month London Interbank Offering Rate (or LIBOR, sometimes referred to as a Eurodollar Rate), looked at on a daily basis. As transactions become larger, the credit facility may include an option for the borrower to use either a base rate tied to a prime rate or a rate tied to LIBOR. The margin for calculating interest above such base rate or LIBOR will often be fixed in smaller deals. For larger middle-market transactions and large transactions, it is most common to have a “pricing grid” tied to excess availability benchmarks as described below.