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Hampton Roads Association for Financial Professionals. December 14, 2010. Borrowing 101. A high level overview of why companies borrow and how they go about it. Tips to help navigate where to turn, and what should be provided. Confidential – For Discussion & General Information Purposes Only. - PowerPoint PPT Presentation
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Hampton Roads Association for Financial Professionals
December 14, 2010
Confidential – For Discussion & General Information Purposes Only
Borrowing 101
A high level overview of why companies borrow and how they go about it. Tips to help navigate where to turn, and what should be provided.
2Eastern VA Regional Commercial Banking
Wide variety – type, size, credit profile Public & Privately held Government, Institutional, Non-Profits, Banks... Start ups – early stage – emerging Established – growing Challenged – difficult times / cyclical, economic,
industry Event driven – ownership changes, mergers and
acquisitions, buyouts
Who borrows?
3Eastern VA Regional Commercial Banking
Why do companies borrow?
Short term needs General working capital Seasonal To fulfill large orders Dividends / distributions / taxes Liquidity
Long term needs Capital expenditures Technology equipment Plant / distribution machinery & equipment Real estate Research and development Expansion Liquidity
4Eastern VA Regional Commercial Banking
Capital Structure Basics: Debt vs. Equity
- Owners- Public / shareholders- Cooperatives – members- Angel- Mezzanine- Private Equity Groups
Investors
- Owners’ equity or members’ capital- Retained earnings- Mezzanine / Junior Capital- Subordinated Debt
Equity
Assets – Liabilities = Equity
5Eastern VA Regional Commercial Banking
Borrowings: Term, Tenor, Type
Secured vs. Unsecured
Collateralized / Cross-Collateralized
Structures- Revolving Lines of Credit
•364 day, 1 year, 2 year, 3 year, +•Borrowing base, non borrowing base
- Term loans•5-7 year
•Loan to values, advance rates, formulas
•Lease vs. Loan: obsolescence, tax impact, reporting
- Mortgages
•10, 15, 20 year amortizations, bullets
- Senior Notes / High Yields / Bonds
- IPOs / Secondary Offerings
- Tax Exempt Financing / Special Programs
6Eastern VA Regional Commercial Banking
Borrowings…
Guarantors- Affiliated companies, parent companies- Owners- Collateralized guarantees
Covenants- Liquidity: earnings or profits, CA/CL, cash or excess availability- Net worth: tangible net worth- Leverage: TL/NW, D/TNW, Sr Debt / EBITDA- Coverage: Interest, Fixed Charge Coverage
7Eastern VA Regional Commercial Banking
Time to Borrow: Starting Point
- Amount needed- Sources – collateral, cash flow, other- Uses – What will proceeds be used for, and over
what time period?- Financial statement condition- Business trends, outlook- Owner plans long term / strategy
Self Assessment
8Eastern VA Regional Commercial Banking
Time to Borrow: Where to Turn
Banks: local, regional, national, global
Commercial finance companies
Specialty lenders
Equipment finance providers
Factors
Asset based lenders
Purchase order finance providers
Investment bankers
Government backed programs / SBA
9Eastern VA Regional Commercial Banking
Time to Borrow: Where to Turn (continued)
Trusted advisors – CPAs, Attorneys, Bankers
Other companies – referrals / testimonials
Industry associations
Signs / Media
Internet
10Eastern VA Regional Commercial Banking
Be prepared: Questions Asked
Company structure
Ownership
Key management team
History
Locations / domestic, international
Operations: buys from, sells to, processes (sales, mfg, delivery)
Internal vs. external contributors
Contracts, Bids
Financial performance / trends / past and future
Competitors
Differentiation / Niche / Strengths
Weaknesses
Outlook / strategy
11Eastern VA Regional Commercial Banking
You may be asked to provide: - Financial statements: 3 years, 4 years, more
- Budgets or projections: 1 year or more, monthly/quarterly
- Tax Returns
- Personal financial statements: owners / principals
- Top customers
- Accounts Receivable
- Accounts Payable
- Inventory
- Machinery & Equipment
- Real estate / Locations
- Appraisals
Be Prepared: Information Requested
12Eastern VA Regional Commercial Banking
Be Prepared: Ongoing Reporting Requirements
You may be asked to provide ongoing:- Financial statements – monthly, quarterly, annually
- Financial statements preparation – compiled, reviewed, audited (firm utilized)
- Covenant compliance certificates - monthly, quarterly
- Borrowing base certificates - daily, weekly, monthly, quarterly
- Asset listings / verifications
- Collateral reports
- Field exams / collateral audits or appraisals
13Eastern VA Regional Commercial Banking
Be prepared: Questions to Ask
Fit / Match- Ability to address need- Culture, institution- Short term or long term solution
Solution Analysis - Is need provided for- What costs are involved- Can company continue to meet requirements: whether reporting,
management interaction, covenant compliance
Approval Process- Steps involved- Who approves: signatures or committee- Timing
Closing Process / Funding- Documentation- Appraisals, Other- Timing
Western Mid-Atlantic Commercial Banking 14
Questions & Answers
Susan L. MillerVice President, Regional Business Development
804-697-6748 Office / 770-235-4488 [email protected]
Wells Fargo Bank, N.A.Eastern VA Regional Commercial Banking Office
440 Monticello Avenue, 11th FloorNorfolk, VA 23510-2372