Financing Challenge:
The partners of a very successful Consumer Products company decided the time was right to sell their company. They received Letters of Intent from a few larger companies in their industry. Prior to accepting the best offer, one of the partners decided that he would match the best offer and purchase the Company himself.

The Company was very profitable with annual EBITDA in the low 7 figures. The Principal had retained an individual to prepare a business plan and the related projections to support a loan request. The Company maintained average bank balances in the low 7 figures and had been banking with the same bank for many years. He submitted the business plan and other historical information to the bank, but was turned down. He submitted this information to a few other banks but was turned down as well.

While the Company was very profitable and was significantly cash flow positive it had insufficient collateral to support a loan of any significance. The Company receives payment from its customers in advance so there is a minimal amount of accounts receivable. The Company purchases from its overseas suppliers on a Just-In-Time basis, hence a nominal amount of inventory is maintained by the Company.

The other reason cited for these bank declinations was the nature of the industry in which the Company operated. Commercial banks have a list of industries in which they do not lend to. The Company's industry was included on all these lists.

One of the banks that turned down the loan request referred the Principal to Asset Enhancement Solutions, LLC for assistance.

Creative Financing Solution:
Asset Enhancement Solutions, LLC ("AES") knew this transaction would be very challenging based on the nature of the Company's industry and lack of collateral maintained in the Company.

AES first reviewed the business plan the Principal had been using for his loan request. While the Plan had many charts, was very colorful and cosmetically looked good, it lacked the depth and incite that was needed to convince a lender to finance a transaction. To make matters worst, the projections contained numerous errors.

AES identified the areas that required change and spent a significant amount of time working with the Principal and his new partner enhancing the depth of the Business Plan and correcting the projections.

The next phase of the transaction was even more challenging. Initially, the

Principal's intent was to buy-out both of his two partners. Unforeseen circumstances arose that affected how many partners the Principal would buy-out. He was not sure if he would be buying-out one partner or two partners.

Armed with a new and improved Business Plan, AES set out to arrange financing for the Buy-Out of either one or two partners of a Company with minimal collateral in an industry that Commercial Banks did not want to touch.

AES found that many Non-Traditional lenders also did not want to provide financing because of the nature of the industry and lack of collateral. Other lenders were not interested because EBITDA was below their required threshold.

AES's long standing motto is that, "Beauty is in the Eyes of the Beholder!" What may not look good to one lender might look good to other types of lenders. Fortunately, this adage held true in this particular transaction.

AES was able to arrange financing options for the Principal and his new partner for each Buy-Out scenario as follows:

• $10 million Term Loan for the Buy-Out of two partners.
• $5 million Term Loan and a $4 million Mezzanine Loan for the Buy-Out of two partners.
• $5 Term Loan for the Buy-Out of one partner. AES was able to structure the transaction such that the remaining Partner did not have to personally guarantee the loan.

The unforeseen circumstance noted above still exists. However, the Principal should be able to Buy-Out either one or two partners using the financing noted above pending resolution of the unforeseen circumstance.

Contact
Neil Seiden, 516-767-0100
neil.seiden@assetenhancement.com

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