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Total Number of Subscribers: 464 |
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Date:9th October 2008 |
Compiled by Mr. M. Sathya Kumar |
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Refinance Corporate Debt...Fast Abstract: Shocking
headlines from major financial institutions like Merrill Lynch to Fannie Mae,
underscore the liquidity shortage that now faces banks and thus operating
companies. Many quality companies will get caught in the middle. Detailed
below is a fast track process for finding financing alternatives and added peace of mind during these
uncertain times. Let’s
be clear the financial shakeup appears far from over. Talking with
investors, business owners, bankers and other finance professionals, the
headlines only tap the surface of what’s actually happening in the
capital markets. Lending parameters available just a few months ago are being
scaled back. Companies believing they have adequate liquidity are getting caught
short. As more companies seek to take down lines or proactively shelter
themselves from future risks, the problem is likely to only get worse. For business owners and CFOs needing added capital, it pays
handsomely to think ahead. The best way to do that is understand your
financing needs, articulate that to numerous funding sources, adjust based on
their feedback, and then select and vet the best solutions for your company.
As suggested by our Fast Track methodology, companies can assess their financing
options and make informed choices about other financing alternatives within a
period of a month and look to have financing in place in as little as 60
days. The key is being prepared, thinking ahead and have access to numerous
possible funding sources. STEP ONE:
Understand the problem and the risks –
The real risk in today’s credit market is less that your loan will be
called and more that the future capital you were expecting (and even paid for) may not be there.
Not having access to even small amounts of capital can jeopardize your
business and create frustrating interruptions. STEP TWO: Identify
your specific financing needs–
Given
the risks, it’s critical companies accurately identify their future
financing needs. The best way to do that is create detailed financial
statement projections. Detailed financial projections should include monthly
or quarterly income statements, balance sheets and cash flow statements for a
period of three to five years, with five years being ideal. (Five years is important
because most subordinated investors price their warrants off the fifth year.
If you don’t give them the projections, they will calculate their own
projections, and their projections are never as high as your own.) If this
work seems daunting, hire a firm to help you on an outsourced basis. Firms with experience, like ours, can often complete this work
much faster than accountants or internal personnel. While the temptation is
to create summarized financials, detailed statements are a superior format
because they also give the clearest picture of the financing need and provide
institutions an opportunity to offer the best terms for your situation.
Better financing terms may mean higher advance rates on debt, or valuable
over advance features during upcoming seasonal periods. STEP THREE:
Entertain other lenders – Not all financial institutions are
struggling. While some are looking to cut their losses or scale back, many
institutions are picking up market share. The trick is to talk to lots of
groups and play the numbers. In these shaky markets, the institution’s
own internal ‘story’ is a bigger driver of your loan process than
is your company’s story. STEP FOUR: Consider
non bank sources for financing – Right now many new
financings are getting done by nonblank financing institutions, such as hedge
funds, subordinated debt funds, insurance companies, etc. These funds have
already raised their needed capital and many of them are filling the void of
the traditional lender. As the market improves, both the company and the
institutions expect that their loans will be reduced with cheaper forms of
capital. STEP FIVE: Give the
prospective financing sources more information Once receiving proposals and before committing to a bank
or financial institution, allow as many as three or four prospective sources
of capital to review detailed information and start some limited due
diligence. This is often accomplished by setting up a data room with files
that show information commonly requested by financing institutions. By
advancing discussions beyond the initial term sheets (i.e. proposals), both
the company and the prospective financing institutions are able to further
assess one another and avoid future surprises or let downs. Equally
important, this step shortens the overall due diligence period, because
sticking points can be dealt with while the company is making its final
decision or deciding whether it needs a
new financing institution. STEP SIX: Be a
contrarian: Look for newopportunities to create value – Just
like when the stock market is down, now is the time to be a buyer if you have
the capability. The market always turns around and most will look back and
acknowledge those that went after new opportunities realized the benefits for
years to come. Initiatives that commonly build value in a down market include
acquisitions, buyouts and even growth. (Consider Bank of Author: Chris Risey, President, A renowed Capital Advisory firm in
US. |
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