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Experience and Expertise in IP

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Managing From NFLV to NOLV

by Hilco Streambank | Jul 31, 2014

Unlike assets such as inventory and accounts receivable, an ABL contemplating a realization on its IP collateral may often have several opportunities to enhance recovery values in a work out situation. As always, planning is the key including making sure that contingency plans to preserve IP asset values are being developed as “going concern” options are pursued. Because of their low carrying costs relative to assets like inventory or real estate, intangible assets are often placed on the back burner in workout executions. Unfortunately, this often leads to avoidable losses in value. Lenders must balance the cost of additional investment to support asset values against the improvement/loss in value which deferring those investments will create. For some IP assets such as retail or consumer products brands, it is often the case that a quick disposition process conducted while aspects of marketing and merchandising support are still intact will generate higher recoveries than a longer sale process conducted when the infrastructure supporting the brand has gone completely dark. The value of other types of IP such as technology or content may be enhanced over time with modest investment. In such circumstances, a lender may be able to enhance its recoveries if it is prepared to own the assets.

Both at the inception of a loan and at the exit, expert assistance from firms such as Hilco Streambank will assist ABLs in making sound IP underwriting decisions. Often ABL borrowers will have engaged an investment bank to assist it in raising additional capital or selling the business. In our experience, these types of advisors are typically focused on the preservation of Enterprise Value and not on the preservation of IP asset values. IP asset disposition experts are critical partners in the process of ensuring that recovery values are understood and maximized.