Understanding the Complexities of PFAS-Related Assets and Their Associated Asset-Based Lending Considerations

July 2025

In recent years, polyfluoroalkyl substances (PFAS) have become the subject of intense regulatory scrutiny, public health concern, and growing environmental activism. Commonly referred to as “forever chemicals” due to their extreme resistance to degradation, PFAS are a group of more than 12,000 synthetic compounds widely used for their oil-, water-, and stain-resistant properties. They are found not only in industrial settings but also in a wide array of consumer goods and packaging—including food wrappers, nonstick cookware, fabric protectors, carpets, mattresses, and even the linings of some beverage containers.

As federal and state regulations tighten around PFAS use and contamination, companies involved in the manufacture or distribution of goods containing these substances face elevated compliance costs, potential liability exposure, and diminished asset values. These pressures have critical implications for asset-based lenders (ABLs), who must carefully evaluate the composition, marketability, and liquidation potential of borrower assets in this evolving regulatory landscape.

The Ubiquity and Persistence of PFAS

PFAS have been commercially used since the 1940s, valued for their ability to resist heat, grease, stains, and water. They are prevalent in consumer and industrial products such as:

• Food packaging (e.g., microwave popcorn bags, fast food wrappers, pizza boxes)
• Stain-resistant carpets and upholstery
• Fabric and leather protection sprays
• Mattresses and foam cushions
• Cosmetics and personal care products
• Plastic and glass bottles
• Firefighting foams
• Nonstick cookware

Once released into the environment—through manufacturing processes, waste disposal, or product breakdown—PFAS compounds can contaminate soil and drinking water supplies. Their molecular structure resists natural degradation, allowing them to persist for decades, bioaccumulate in human and animal tissues, and circulate globally through water and air. According to the U.S. Environmental Protection Agency (EPA), exposure to certain PFAS compounds has been linked to a range of health effects, including immune system disruption, developmental delays, cancer, and liver damage.

Regulatory Expansion and Implications for Manufacturers

Regulatory scrutiny of PFAS is accelerating worldwide. In the U.S., several states—including California, Maine, Vermont, Colorado, and Washington—have introduced or implemented laws banning PFAS in certain types of product packaging, particularly those used in food contact applications. Maine’s 2021 law (effective 2023) was among the most aggressive, requiring manufacturers to report PFAS content and ultimately phase them out entirely from consumer products.

At the federal level, the EPA finalized drinking water limits for six PFAS compounds in 2024 under the Safe Drinking Water Act, setting maximum contaminant levels as low as 4 parts per trillion (ppt) for perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS). These limits are expected to force many water utilities and manufacturers to invest in costly filtration and testing equipment, increasing capital requirements.

Most recently, the Trump administration’s stance on PFAS regulation has been marked by a combination of tightened standards in some areas and delays or rollbacks in others. While certain federal drinking water limits and reporting rules have remained intact, other proposed restrictions have been postponed or reevaluated. This uneven approach has raised concerns among environmental advocacy groups, who fear that the regulatory framework may ultimately weaken, leaving gaps in public health protections. As the administration continues to shape its environmental agenda, the future trajectory of U.S. PFAS oversight remains uncertain.

The European Union is also pursuing sweeping restrictions. In 2023, the European Chemicals Agency received a proposal to ban over 10,000 PFAS substances across multiple applications under REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) regulations—a move that could have global supply chain implications if adopted.

These expanding regulatory frameworks are forcing manufacturers and distributors to reformulate products, replace legacy inventory, and manage growing legal liabilities. Companies in packaging, textiles, consumer goods, and industrial manufacturing are all affected—particularly those that relied on PFAS as a key differentiator in performance or durability.

PFAS and Asset-Based Lending: Risk, Recovery, and Valuation

Asset-based lenders providing working capital to manufacturers, distributors, and converters of packaging and consumer goods must incorporate the risk associated with PFAS into their collateral evaluation and monitoring processes. Lenders typically advance funds based on a percentage of the net orderly liquidation value (NOLV) of a borrower’s tangible assets, such as inventory, and the appraised valuations of its equipment and real estate. When those assets are tied to products containing PFAS, several unique challenges emerge.

Marketability and Demand Shifts

Legacy inventory containing PFAS may face declining demand or outright bans in certain jurisdictions. Even if technically legal to sell, products with PFAS content may be considered obsolete or undesirable by downstream buyers due to liability concerns, limiting the potential buyer pool in a liquidation scenario. Food packaging manufacturers, for example, may find their older product lines unsuitable for resale to increasingly cautious end users.

This shift in marketability can materially lower the appraised value of finished goods and work-in-process (WIP) inventory. As PFAS bans expand, appraisers must discount inventory more aggressively, and lenders may need to adjust borrowing base advance rates downward to reflect a reduced expected recovery in liquidation.

Manufacturing Equipment Considerations

Many borrowers also own specialized equipment used to manufacture or apply PFAS-treated coatings, films, or textiles. While such machinery may remain valuable to operators in non-regulated jurisdictions or alternative applications, regulatory trends suggest shrinking resale markets over time.

Historic data on machinery liquidation trends—including sale prices achieved for similar PFAS-application lines in past auctions—can help appraisers and lenders more accurately determine recovery expectations. For example, spray booths, curing ovens, or laminate coaters used in PFAS coating processes may show a pattern of declining resale value as regulatory constraints tighten and buyers become more cautious.

Lenders can mitigate this risk by working with appraisal partners who maintain highly specific proprietary datasets across various equipment classes and industries. These datasets allow for modeling depreciation curves based on real-world observations rather than theoretical estimates, improving confidence in NOLV calculations.

Environmental Liability and Site Contamination

Another concern for ABLs is the environmental liability associated with PFAS use or storage. If a borrower operates facilities where PFAS have been manufactured, processed, or disposed of, there is an increased risk that site contamination could lead to costly cleanup orders or reduce the value of the underlying real estate. In such cases, the appraised value of owned land and buildings may need to reflect environmental remediation costs or a restricted pool of buyers.

Due diligence, including Phase I or Phase II environmental site assessments, is critical in these scenarios. Lenders should also monitor emerging rules related to the designation of PFAS as hazardous substances under federal Superfund laws, which could significantly expand potential liabilities for current and former facility owners.

Unlocking Borrowing Power Amid Regulatory Pressure

Despite the challenges associated with PFAS-related assets, companies can still unlock borrowing power by proactively managing inventory composition, product transitions, and asset transparency. Asset-based lenders can assist by:

• Requiring regular collateral audits to track PFAS-containing inventory and flag at-risk SKUs
• Partnering with specialized appraisers to obtain accurate valuations based on current market data and historical trends
• Adjusting advance rates dynamically to reflect changing liquidation risks across different asset categories
• Structuring borrowing bases to incentivize the phasing out of PFAS-containing stock and the adoption of alternative inputs
• Revisiting floor planning agreements and customer returns policies that may be affected by new PFAS restrictions

Ultimately, lenders and borrowers alike benefit when decisions are grounded in empirical data, risk-adjusted valuation models, and up-to-date insight into regulatory developments.

Looking Ahead: Transition, Transparency, and Trust

As the global movement to eliminate PFAS from consumer and industrial products continues, businesses across the value chain must navigate a complex transition period. Companies that embrace transparency, invest in safer alternatives, and proactively manage the financial impact of legacy PFAS exposure will be best positioned to sustain access to credit and maximize asset value.

For asset-based lenders, the ability to distinguish between viable collateral and stranded assets is more important than ever. By leveraging historical asset recovery trends, understanding real-time regulatory dynamics, and engaging with experienced appraisers, lenders can support their borrowers through this transformation while protecting their own collateral risk.

The PFAS challenge is emblematic of a broader shift toward sustainability, traceability, and lifecycle accountability in asset-intensive industries. Success in this environment will depend not only on science and policy—but on how well companies and their financing partners adapt to the new rules of value.

Asset Valuation: The Hilco Global Difference

Hilco Valuation Services is the world’s leading provider of asset appraisals with a proven, decades-long track record of providing the most accurate appraisals across all asset categories. The scope of the valuations we deliver range from a single asset in one domestic location to millions of assets located around the world.

We are able to affirm current asset value through proprietary market data sourced from the collective worldwide asset disposition and acquisition experiences of Hilco Global over time. In contrast to the aged data relied upon by others in the industry, access to this cumulative, real-time information ensures delivery of the most reliable valuations for our clients.

As one of the world’s largest and most diversified business asset appraisers, field examiners and valuation advisors, we have expertise across a wide range of asset classes including inventory, machinery and equipment, real estate, and enterprise valuation. From aerospace and financial services to retail and energy, healthcare, and technology, we have delivered valuations for all industries. Additionally, the breadth and depth of our team’s expertise enables us to provide services ranging from Lending and Financial Reporting to Enterprise Planning and Litigation Support.