Corporate Finance Solutions

When a company needs to place debt and equity instruments with sophisticated investors, GM&A can provide invaluable assistance. This is a major part of our business and we have developed extensive networks of contacts we can activate on behalf of our clients. We work with banks, finance and insurance companies, individuals, pension funds and partnerships. Our financing services include:

Lines of Credits - A line of credit provides an available source for funding working capital needs such as cash flow shortages, financing accounts receivables and purchasing inventory. This funding mechanism is flexible in that funds may be borrowed and repaid as needed. Lines of credit may be secured or unsecured and are reviewed annually.

Revolving Credit Facilities - Like lines of credit, revolving credit facilities, often called “revolvers,” allow companies to borrow or repay funds as needed. Revolvers are typically secured by accounts receivable and/or inventory and usually have a term of 3 to 5 years. Because of the liquid nature of the underlying collateral, revolvers are generally the cheapest financing option available to middle market firms.

Asset-Based Loans - Companies that do not qualify for traditional bank funding may consider asset-based loans as an option for financing. These loans are secured by inventory and/or accounts receivables of the business. Generally, a company may borrow between 65% to 85% of current accounts receivables and 30% to 55% of inventory, depending on the nature of the collateral and the size and stability of the company’s cash flows.

Commercial Real Estate Loans - Commercial real estate loans can be used to acquire, refinance or construct offices, retail facilities, factories, hotels and other real estate projects. A company can generally borrow 75% to 85% percent of the value of its real estate. In addition, the company’s debt service ratio is also considered. The company’s cash flow must generally exceed debt service by at least 20%. Typically, the loan may amortize over 20 to 30 years, with a balloon payment due between 10 to 15 years.

Term Loans - Term loans can be used to finance intermediate or long-term fixed assets. Term loans are granted based on the borrower’s ability to generate cash flow. The term of the loan is dependent on the economic life of the collateral.

Senior Secured Debt - Senior secured debt is a funding source for companies that have real estate and other fixed assets with no attached liens. These loans may be used to fund an amount equal to approximately 60%-85% of the fair market value of real estate and anywhere between 40%-90% of the liquidation value of equipment and machinery. Senior secured debt may also be used to fund leveraged buyouts of businesses.

Subordinated Debt - Subordinated debt is an option for businesses that have existing liens on their assets. Subordinated debt is secured by a second lien position in fixed assets or may be totally unsecured. These funds are provided based on the amount and stability of cash flow available after servicing senior debt. When tied to a broader financing package, such as a leveraged buyout or turnaround recapitalization, principal amortization can be deferred for the first few years to meet the cash flow constraints of the company.

Mezzanine Financing - While some people consider subordinated debt as a form of mezzanine capital, it is more traditionally defined as a form of quasi-equity with elements of both debt and equity. Subordinated debt with attached warrants to purchase equity of the company and convertible debt are examples of mezzanine financing. The equity features provide the lender with the potential to earn a sufficient return to offset the risk being assumed, while allowing the borrower a manageable interest rate.

Private Equity Capital - Private equity capital can take the form of either preferred or common stock. Because equity is riskier than debt, it is more expensive and entails the dilution of ownership position. Private equity transactions are typically structured with a 5 to 7 year exit strategy. Private equity is useful in meeting a number of corporate objectives. For example, it can fuel growth while strengthening the company’s balance sheet. Private equity can also be used to buy out an existing shareholder or in a corporate restructuring to provide liquidity to existing shareholders. Because an equity placement can be structured with no scheduled payments, private equity is useful in resolving turnaround situations.

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