What is a debt capital deliverable?
A debt capital deliverable is any document or report that a borrower agrees to send to a capital provider (either once or on a recurring basis) as part of a credit agreement.
Tracking and meeting deadlines for debt capital deliverables is one of the keys to ensuring debt capital compliance and prompt access to funding from a credit facility, but the documentation needs of debt capital management often blindside fintech borrowers—especially those raising debt capital for the first time.
Here, we walk through the 5 most common types of debt capital deliverables, as well as what to expect when you're preparing your capital provider reports for the first time.
What are the 5 most common debt capital deliverables?
The format, delivery schedule, and full list of debt capital deliverables can be found in the credit agreement between a borrower and a capital provider. Because credit agreements are negotiated between borrowers and capital providers, and can change significantly throughout the course of a negotiation, the "source of truth" for debt capital deliverables will always be the executed (i.e., signed) credit agreement between a borrower and capital provider.
That said, based on our experience reviewing and automating reporting on hundreds of debt capital deals, the key deliverables in asset-based finance deals tend to be: (1) draw requests, (2) asset reports (e.g., loan tapes), (3) financial statements, (4) financial covenant reports, and (5) borrowing base certificates.
1. Draw requests. Draw requests are borrower requests for funds from a capital provider. As shown below, draw request packages often involve one or more of the deliverable types mentioned below, so they're a bit of a catch-call term for debt capital deliverables. You can think of draw requests as a common sense test of debt capital compliance; if a borrower's able to draw funds consistently, they are likely in compliance with all of their other debt capital obligations.
2. Asset reports. Asset reports are up-to-date snapshots of the collateral that a borrower has raised debt against. Common examples include loan tapes or servicing tapes. Capital providers analyze these reports to make sure that the riskiness of the borrower's asset portfolio has not changed significantly over time.
3. Financial statements. Financial statements capture the business performance of a company. When it comes to debt capital arrangements, it's common for capital providers to require unaudited financial statements quarterly and audited financial statements annually. While regular financial reporting is common at large companies, debt capital financial reporting is often an uncomfortable forcing function for fintechs not accustomed to preparing financial statements.
4. Financial covenant reports. Financial covenants are rules or quantitative thresholds that borrowers must adhere to in order to maintain access to their debt capital. Common financial covenants include KPIs around borrower liquidity or net worth (you can find some examples here), which means that borrowers must compile up-to-date figures from across disparate bank accounts in order to generate these reports.
5. Borrowing base certificates. As we previously covered, a borrowing base is the amount of money a company can borrow from a lender, and it's calculated by adding up all the assets that a borrower can put up as collateral (cash, inventory, and accounts receivable, for instance). A borrowing base certificate presents this information in an XLSX or PDF format for a lender to inspect.
Want to learn more?
After businesses raise debt capital successfully, their challenge shifts from accessing debt capital to making sure they’re making the most of their credit facility.
When it comes to tracking debt capital deliverable deadlines and reports, the only way to guarantee timely and accurate reporting is to rely on technology designed to surface key reporting deadlines on a rolling basis and automatically export accurate, up-to-date capital provider artifacts as needed.
If you're interested in learning more about software that can help you scale your capital markets function and ensure debt capital compliance, just request a consultation with a Finley debt capital expert and we'll be in touch!