- Background
A publicly-traded manufacturer of components for mass transit systems needed to retire an existing term loan while simultaneously expanding its capital base to support international expansion. The maturing obligation carried a penalty of 10% of the outstanding principal amount in the event the Company failed to repay at maturity and required an extension. Approximately three weeks before closing, the lead senior lender chosen to complete the financing changed the terms of the inter-creditor agreement, rendering it unacceptable to the mezzanine lender.
- Financing Challenge
- Develop a multi-tiered capital structure that repaid the maturing obligations and
provided revolving credit capacity to both domestic and international subsidiaries.
- Build the capital base for future growth through the placement of a bridge mezzanine
layer of capital to be repaid from a future stock offering.
- Replace the chosen senior lender and complete the financing within three weeks.
- Solution
- Debt Financing Auction:
By running a debt financing auction process, the Company was assured of back-up and alternative senior lenders capable of stepping in on short notice to complete the financing in the timeframe required.
- Resource Dedication:
Drawing on extensive relationships with working capital lenders, facilities for both domestic and international receivables were established, providing significant increase in liquidity.
- Identification of Key Mezzanine Lender:
Possessing relationships with nearly 100 mezzanine lenders allowed the identification of those with investment horizons and interests in sync with the needs of the company.
- Result
- The transaction was completed within the required timeframe to avoid the punitive
effect of the extension premium.
- The weighted average financing cost was reduced by nearly 300 basis points.
- The Company experienced significantly improved liquidity and now possessed the
capital required to execute on its international expansion plans.
- The Company's stock price rose 25% in the two weeks subsequent to the
announcement of the refinancing in recognition of the financing's value to the shareholders.