Transaction Advisory

Client Background:

A prominent financial services firm with an existing $55 million credit facility. The firm sought to restructure its financial position to achieve several objectives.

Objectives:

1. Recapitalize the existing credit facility from $55 million to $75 million.

2. Incorporate a $25 million accordion feature.

3. Provide liquidity to equity holders.

4. Increase the advance rate.

5. Transition more of the interest rate risk from variable to fixed.

Approach:

1. Pro Forma Financial Model: Our team constructed a comprehensive pro forma financial model that incorporated the client's target terms. This model served as the foundation for all subsequent negotiations and decisions.

2. Documentation Review and Revision: We undertook a thorough review of the client's existing credit agreements. Based on our findings and the client's objectives, we drafted revisions to align with the desired outcomes.

3. Engagement with Capital Providers: Leveraging our expansive network of banks, private equity firms, and family offices, our team engaged with multiple potential capital providers. Our team made presentations, addressing their queries and concerns. This ensured that the capital providers had a clear understanding of the client's position and objectives.

4. Firm Overview and Presentation: A detailed firm overview was prepared, highlighting the strengths, opportunities, and future prospects of the client. This was used in presentations to potential capital providers.

5. Scenario and Sensitivity Analysis: Based on the term sheets received from capital providers, we ran various scenario and sensitivity analyses. This helped the client understand the implications of each offer and make an informed decision.

6. Summary and Recommendation: All findings, analyses, and discussions were synthesized into a comprehensive summary. This provided the client with a clear roadmap for the next steps.

7. Closing: After evaluating all term sheets, the client chose to proceed with the capital provider that offered the most favorable terms. We facilitated the closing process, ensuring a smooth transition.

8. Post-Close Support: Our engagement didn't end with the closing. We provided extensive post-close support, including:

   • Assisting in the construction and maintenance of the borrowing base.

   • Ensuring the client conformed to the credit agreement, financial covenants, operational covenants, eligibility criteria, and excess concentration constraints.

Outcome:

The client successfully recapitalized its credit facility, increasing it from $55 million to $75 million, with an added $25 million accordion feature. This not only achieved the client's initial objectives but also provided them with the flexibility to access additional capital in the future. The new structure provided the desired liquidity to equity holders, increased the advance rate, and shifted a significant portion of the interest rate risk to fixed. With our post-close support, the client was well-equipped to maintain compliance with the new terms and continue its growth trajectory.

Key Takeaways:

1. A well-structured financial model is crucial for informed decision-making.

2. Leveraging an expansive network can significantly enhance the range and quality of capital providers.

3. Achieving a significant increase in credit facility size, coupled with an accordion feature, provides clients with both immediate capital and future flexibility.

4. Post-close support ensures that the client can maintain and benefit from the new financial structure in the long term.

This case study underscores the importance of a holistic approach in transaction advisory, where the journey doesn't end with the transaction but continues to ensure long-term success for the client.