Testimonials From a Client at Every Step in the Finance Life Cycle:
During Due Diligence: “When a strategic acquisition opportunity presented itself, I needed to move fast with assets that typical lenders do not like to finance. To get the deal done, Loeb Term Solutions not only assisted in the syndication but also assisted in the organization of the collateral and the cleanup of over 600 liens — all above the other various hurdles normally encountered during an acquisition by a new company.”
After Closing: “Loeb Term Solutions was a real team player in this process and saw these issues through with their persistence, determination and their suggestions to take care of the matter at hand.”
After the Successful Liquidation of Assets: “Thank you for all your help through this. Not sure how this would have gone if you didn’t have my back. I will not forget and hope we can do something in the future.”
Asset Based Lending in Volatile Industries
As with any asset-based financing, lending on the machinery requires a pre-planned exit strategy. Volatility in any industry could result in a liquidation of the company and its assets, but it’s important for our finance partners and clients to understand that the assets we are lending on potentially have different values depending on the industry utilizing them.
About a year ago, Loeb Term Solutions financed a company in the scrap metals and recycling industry. Changes in the value of scrap metal caused the closure of the business. Recognizing that asset values may be different in other industries, LTS felt the current value of the assets protected its loan and was comfortable in the decision to hold off on the liquidation since we knew much of the equipment would be used in other “healthier” industries.
The owner decided to work through an Assignment for the Benefit of Creditors (ABC), and with the cooperation of all parties, the Assignee was able to liquidate some of the assets under the LTS lien in an Orderly Manner that allowed those buyers to buy before the auction and to continue to service the clients of the Borrower. After several months of this type of liquidation, the remaining assets were offered for sale in Bulk and sold to an Auctioneer group that then ran an auction to sell the remaining individual items piece-by-piece.
Because of Loeb’s valuation expertise and industrial knowledge, all ended well for everyone. The Assignee was able to run an orderly closure of the business, LTS was able to be paid off in full for its Term Loan on the machinery, and the auctioneer made a profit for the work he did selling off the pieces.
On the other end of the spectrum, we currently have a turnaround situation underway in another volatile market, the printing industry. This deal poses a much bigger risk as printing presses cannot be redeployed for use in other industries. In this case, the exit strategy hinges on working closely with the owner of the shutdown facility and allowing him time to find competitors who may be interested in his presses before we take them to auction.
As a lender, LTS recognizes the differences in these distressed industries and we structure our loans accordingly in order to protect both the borrower and the lender. Largely this is accomplished by adjusting the advance rate. For clients with machinery that has a stronger resale value to alternative industries, a larger advance rate can be funded. Whereas companies with very specific machinery to their industry can only be advanced a smaller portion of their appraised value. Overall, the key to lending within distressed industries is having a solid exit strategy that fully recognizes the value of the machinery and whether or not it may be specific to the industry you’re lending in.