U.S. asset-based lending (ABL) facilities present in a defaulted issuer's capital structure demonstrated complete recoveries in a bankruptcy scenario, according to a new Fitch Ratings report.

Fitch reviewed 12 recent U.S. bankruptcies - five liquidations and seven reorganizations - where the debtors' pre-petition capital structure included ABL facilities. The outcomes validate full recovery prospects for ABL facilities regardless of whether resolution occurred via a liquidation or going-concern route.

Fitch attributes these recovery outcomes to a mix of three key factors: 1) the over-collateralized status of pre-petition ABLs; 2) a security interest in liquid collateral that was much sought-after by debtor-in-possession (DIP) lenders as well; and 3) lender dominion over cash which helped reduce the ABL balances (or claim size).

The report also delves into related themes such as the role of liquidators that submit equity-bids in bankruptcies and the unique advantages bestowed by the cash dominion feature both before and following a bankruptcy event.

In addition to the bankruptcy analysis, the report explains how these empirical observations are integrated into Fitch's recovery methodology for ABL-inclusive capital structures using worked examples. The objective of Fitch's methodology is to assign recovery ratings to debt based on recovery prospects in a potential bankruptcy scenario. The appendix of the report provides a general overview of the basic concepts and the unique structural features of an ABL.