Intercompany and affiliate receivables: the automatic exclusion

Every other eligibility rule involves judgment. This one does not. A receivable owed by your own affiliate fails as collateral for three stacked reasons. The credit is circular: if the borrower fails, the affiliate that owes it money is usually failing too, so the collateral evaporates exactly when it is needed. The terms are not market: intercompany pricing and payment timing are whatever the group decides. And the balance is movable: a journal entry can create, settle, or resize it, so the lender cannot trust the number.

That is why this exclusion appears in essentially every agreement with no basket and no carve out, and in securitizations it also polices the perimeter of the sold pool: an originator selling receivables into a special purpose entity must sell trade paper from real third parties, not claims on its own group.

The test itself is simple: identify every obligor that is an affiliate under the agreement's definition, which commonly covers ownership or control relationships above a stated level, and exclude their balances entirely. No netting, no threshold.

The exclusion removes $1,750,000, which is $1,487,500 of availability at an 85 percent advance rate. Note what the rule does not care about: both affiliate balances could be current, documented, and routinely paid. Eligibility here is about who the obligor is, not how the invoice is performing. One nuance worth knowing: when an affiliate resells to real third parties, the financeable receivable is the affiliate's own AR from those end customers, which is why group structures sometimes get reworked before a facility closes.

The fields are obligor id, obligor legal name, and open amount, joined against a maintained list of affiliate entities. The list is the problem. Customer masters do not carry an is affiliate flag, and affiliates hide behind names that give no hint of the relationship: a sister company operating under a trade name, a joint venture booked as a normal customer, an entity acquired last quarter that nobody added to the list. Partial ownership cases need the agreement's actual definition, since control tests commonly reach entities well below 100 percent ownership.

The other break is drift. The affiliate list is accurate at closing, then the group acquires, merges, and renames entities, and the certificate keeps using the closing date list. Field examiners cross check the customer master against the org chart, and an affiliate balance reported as eligible is one of the fastest ways to turn a routine exam adversarial.

• Affiliate entities are maintained as explicit facility configuration, matched against normalized obligor names so renamed or trade name affiliates do not slip through.
• The exclusion is deterministic and total: any invoice mapped to a listed affiliate is out, on every certificate, with no monthly rediscovery.
• The affiliate list is versioned per facility, so acquisitions and reorganizations become a configuration change with an effective date rather than a silent gap.
• Every excluded balance traces to the obligor, the affiliate mapping, and the source invoices, so the intercompany line reconciles to the ledger and to the org chart.