The nuances of re-capitalising businesses
News Flash
Hermes is running a series of seminars for finance brokers on topics including “Working with Bank Workout Teams”, “Funding Business Acquisitions” and “Dealing with ATO debt in the context of commercial finance”.
These are all “special situation” scenarios where out of the box thinking is key for getting funding set – and where the banks and major institutions have a gap in their commercial and corporate finance offerings.
“Special Situations”” are also where Hermes unique approach to funding debtors, plant and equipment and real property can be the difference betweem success and failure.
This month’s case study demonstrates how Hermes fills the gap left by the banks and other institutions in the SME market for commercial finance in “special situations”.
Transitional Situation
A family held manufacturing business in Queensland that had been trading for over 20 years had decided to time had come to list. Its advisors and the business agreed the best opportunity to do so was via a “back door listing”.
In preperation for this, the business needed to re-capitalise – both to fund growth leading up to the listing and to restructure its balance sheet.
The primary assets in the business included equipment and debtors. Traditional funding sources were happy to lend against the debtors but were not prepared to lend against manufacturing plant that included items purchased up to 20 years ago.
Asset Based Lending Solution
The overall funding requirement was $5 million including $3 million for working capital and $2 million towards refinancing secured creditors who needed “tidying up” pre-listing.
The solution included a term loan for $2 million to facilitate the refinance in combination with a debtor finance facility for $3 million to fund the on going working capital requirement.
The fixed assets – predominantly manufacturing plant – were valued on an auction basis.
The debtors included mining companies and other manufacturers and provided good security for the working capital requirement.
The gap in the market for commerical finance
Hermes was the only lender prepared to take a view on the manufacturing plant and because both debtors and equipment needed to be funded in order for the target capital raising to be achived, Hermes provided an appropriate solution.
Outcome
The business now has the funding “runway” necessary for its listing to take off, with its balance sheet impediments taken care of.
The family owners stand to bank a substantial figure once the business has listed, making the Hermes process a valuable undertaking.