A 12-store retail chain with $40 million in sales was performing very poorly and was asked by its bank to find a different lender. The Company had reported losses for three of the last four years ranging from $750,000 to $2.5 million per year, and was in violation of various loan covenants.
The Company also had a number of other issues; it was highly leveraged with a Debt to Equity Ratio of 7.5 to 1, was the defendant in a lawsuit with a vendor who had a legitimate claim for $1.5 million and had a significant amount of excess inventory on-hand.
The good news was that the Company owned nine commercial properties, 6 Owner-Occupied properties housed its stores and 3 properties were purchased for investment purposes.
The bad news was that the Company approached several banks, both on its own, and through referrals by its CPA firm and were turned down by all of the lenders.
The CPA referred the Company to Asset Enhancement Solutions, LLC ("AES") for assistance in finding a lender that could provide the appropriate financing given the situation at hand.
The two biggest challenges facing Asset Enhancement Solutions, LLC ("AES") were (1) the Company projected a sizable loss for the current year after showing a very small profit for the prior year and (2) it is very difficult to refinance owner-occupied real estate at a fair interest rate when there were losses in three of the last four years and the Company cannot demonstrate positive cash flow.
AES performed extensive due diligence and analysis, so in spite of all of the Company's issues it could be presented in the best manner possible. AES worked very closely with the Company's CFO and Controller to compile this financial and non-financial information.
AES successfully received LOI's from a few lenders that were interested in providing financing to the Company. This provided the Company with several options and allowed AES to tailor a solution that best fit the Company's needs.
The best solution proved to be splitting the credit facility into three tranches amongst two different lenders: A $7,250,000 term loan for the Owner-Occupied properties, a $7,000,000 Revolving Line of Credit for Inventory and Accounts Receivable and a $2,000,000 Bridge Loan for two of the three investment properties the Company was planning to sell in the short-term. The Owner-Occupied real estate mortgages were priced at Prime plus 2.5%, the Revolving Line of Credit at Libor plus 3.75% and the Bridge Loan at Libor plus 5.75%.
This credit facility provided the Company with ample funds to both refinance its existing bank debt and enough excess working capital to fund its growth strategy of opening additional stores.
Neil Seiden, 516-767-0100
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