The Borrowing Base in Private Securitisations Explained – and Why It Matters

Imagine securitisations as cathedrals – vast, rigid, and painstakingly built. Private ones, though, are more like boutique hotels: smaller, adaptable, and endlessly customisable. And holding it all together is a deceptively simple idea – the borrowing base. So, how does this little engine actually work?

The Basics – How It Works

At its simplest, the borrowing base is a running tally that determines how much money can be borrowed at any given time. And like most things in structured finance, it all comes down to a formula:

Borrowing Base = Σ (Eligible Asset Value × Advance Rate)

Don’t panic – the Greek letter Σ just means “add everything up”. All you’re doing is adding up the assets that meet the deal’s rules (the eligible assets) and multiplying each by the percentage of its value the lender is willing to fund (the advance rate).

So, say you have a loan that ticks every eligibility box. With an 80 per cent advance rate (we’ll dig into what that means in a second), you can borrow £800,000 against it – the rest is the lender’s version of ‘just in case’. Add up those figures across the portfolio and, voilà, there’s your borrowing base: the upper limit of what the structure will let you borrow.

But numbers only get you so far – someone still must decide which ones count. Enter the lawyers.

The Legal Architecture

Only assets that meet agreed standards get through the door. Legal documents spell out the fine print – what type of loans qualify, which jurisdictions count, and how defaults or arrears affect eligibility.

Advance Rates

Each asset type is assigned an advance rate – effectively a haircut on its value. In finance, that just means lenders take a cautious trim off the top, funding slightly less than the asset’s full worth to leave room for surprises. Senior secured loans might attract an 85% advance rate, while unsecured consumer loans may be limited to 50%. The riskier the asset, the smaller the advance – a polite way of saying, ‘we like your loans – just not that much’.

Concentration Limits

No one wants a portfolio that’s all eggs and one basket. Limits are built in to cap exposure to any single borrower, sector, or location. Step over the line and the excess gets chopped from the borrowing base.

Once the assets are in, the real test begins – keeping them there.

Valuation and Reporting

Every month (or more often, if investors insist), the issuer must report on what’s in the pool, what it’s worth, and whether it still passes muster. This constant monitoring keeps the borrowing base honest – leaving investors with the rarest commodity in finance: genuine peace of mind.

Why It Matters

So far, we’ve dealt with the maths and the fine print. But the borrowing base also has a day job: keeping private deals upright when sentiment sours.

Keeping the Balance

Public securitisations tend to be frozen in time – the collateral pool is set on day one and rarely changes. Private deals, however, are livelier creatures. As loans are repaid or new ones are added, the borrowing base adjusts automatically, keeping the deal in step with the real value of what’s underneath. It’s finance that tidies up after itself.

Protecting Investors

The borrowing base acts as an early warning system. If loans start to wobble or values slip, the funding limit shrinks in tandem – forcing repayments before problems turn into headlines. Investors don’t need to rely on good faith alone; the maths keeps everyone honest.

Giving Issuers Room to Breathe

For originators, it’s a far smoother ride. They can draw down funding as new assets arrive instead of refinancing the whole structure each time. Less downtime, fewer lawyers, more efficient use of capital – what’s not to like?

When Things Go Pear-Shaped

Of course, flexibility comes with strings. If the portfolio underperforms or values dip too far, borrowing-base breaches can freeze new funding, trigger margin calls, or prompt early repayments. Put simply, it spots trouble early – though it rarely does so quietly.

How It Differs from Public Deals

All of which raises an obvious question – if this works so well, why don’t public deals do it too?

Public securitisations are grand but immovable: static collateral pools, fixed leverage, and investor consent forms that make War and Peace look like light reading. Private deals, by contrast, live and breathe.

Their borrowing bases adjust as the assets evolve, sitting somewhere between a securitisation and a revolving credit facility. You still get bankruptcy-remote protections, but with the freedom of a bilateral loan. Proof that structure and flexibility can, occasionally, get along.

Where You’ll Find It

So, where does all this theory show up in real life?

You’ll find borrowing-base structures wherever money and assets are constantly on the move.

They’re the scaffolding behind:

• Warehouse facilities – short-term funding lines that hold loans before they’re packaged into full-blown securitisations.
• Fund-finance deals – such as NAV and hybrid loans, where lenders advance money against a fund’s changing portfolio.
• Private credit securitisations – those revolving structures where new loans roll in as old ones roll off.
• Specialty finance platforms – think trade receivables, equipment leases or SME loans, where cash and collateral shift daily.

In each case, the borrowing base is the quiet bookkeeper – making sure the numbers behave, even when the assets don’t.

The Last Word

The borrowing base is the quiet control centre of private securitisations – giving issuers room to manoeuvre while keeping investors safely buckled in. By tying funding to real collateral, it keeps structure but loses the straitjacket. As private markets grow, it’s fast becoming the format of choice for anyone who values flexibility with a touch of discipline.