hampton roads association for financial professionals december 14, 2010 confidential – for...
TRANSCRIPT
![Page 1: Hampton Roads Association for Financial Professionals December 14, 2010 Confidential – For Discussion & General Information Purposes Only Borrowing 101](https://reader036.vdocument.in/reader036/viewer/2022082710/56649e835503460f94b85035/html5/thumbnails/1.jpg)
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.
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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?
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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