Senior stretch loan
Encyclopedia
A senior stretch loan, or overadvance loan, is a hybrid debt
instrument consisting of both asset-based loan and cash flow loan
. Such loans are suitable for two types of companies:
For both types, the senior stretch debt structure takes advantage of the combination of the company's assets and cash flow
to make significantly more debt available than would have been otherwise.
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
instrument consisting of both asset-based loan and cash flow loan
Cash flow loan
Cash flow loan is a type of debt financing, in which a bank lends funds, generally for working capital, using the expected cash flows that a borrowing company generates as collateral for the loan....
. Such loans are suitable for two types of companies:
- Companies that have substantial asset base but do not have stable or predictable cash flows. For example, troubled or turnaround companies. Cash flow loans would be much smaller and more expensive for these companies.
- Companies with healthy cash flows but lower assets. In this case, a pure asset-based loan would be insufficient.
For both types, the senior stretch debt structure takes advantage of the combination of the company's assets and cash flow
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
to make significantly more debt available than would have been otherwise.