Obligor Limit Defined
An obligor limit is the maximum amount of accounts receivable exposure that a securitization facility or asset-based lending program will accept from a single obligor (customer). It is a dollar amount or percentage cap designed to prevent the facility from becoming overly dependent on any one payer. If the receivables from a given obligor exceed the obligor limit, the excess is excluded from the eligible receivables pool and does not count toward the borrowing base. Obligor limits are a subset of the broader concentration risk management framework and are specified in the facility agreement for each obligor or concentration group.
How Obligor Limits Are Determined
Obligor limits are typically assigned based on the obligor's credit quality, using a tiered concentration group system. Each obligor is assigned to a concentration group based on its credit rating, financial strength, and payment history. For example, Group A (investment-grade, rated BBB- or above) might have a limit of 15% of total eligible receivables, Group B (strong sub-investment-grade) a limit of 10%, Group C (standard) a limit of 5%, and Group D (watchlist or unrated) a limit of 2-3%. The dollar limit is dynamic, as the total eligible pool grows or shrinks, each obligor's dollar limit moves proportionally. Some facilities also set absolute dollar caps that override the percentage-based limit.
Excess Over the Limit
When an obligor's receivables exceed their limit, only the amount up to the limit is counted as eligible. The excess, the amount above the cap, is classified as an ineligible deduction in the borrowing base certificate. For example, if an obligor has a 10% limit and the eligible pool is $20 million, their cap is $2 million. If they have $3.5 million in otherwise-eligible receivables, $2 million is eligible and $1.5 million is excluded as concentration excess. This excess is reported as a separate line item in the BBC ineligible deductions schedule. The excluded amount still represents a valid receivable, the obligor is still expected to pay, but it does not support borrowing availability.
Monitoring and Managing Obligor Limits
Proactive obligor limit monitoring is essential for maximizing borrowing availability. Borrowers should track each obligor's utilization against their limit in real time, anticipate how new sales to concentrated obligors will affect availability, and consider prioritizing collections from obligors near their caps. When a key customer consistently exceeds their limit, the borrower may request a limit increase through a facility amendment, supported by updated credit analysis of the obligor. Platforms like Olycor provide real-time obligor limit dashboards, automated alerts when utilization exceeds warning thresholds (e.g., 80% of the cap), and what-if modeling to project concentration impacts from planned sales growth.