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  • A Financing Example

A FINANCING EXAMPLE

Company X, which is profitable and growing rapidly, has an existing commercial bank line of credit and a term loan against fixed assets. As is the case with most Institutional Commercial bank loans, the Company’s credit facility is restricted by a number of financial covenants, including a debt/equity financial covenant of 2.5:1. As a result of the covenant restrictions, the Company’s total loan availability is capped at $2,000,000.

Danbury Capital determines that the forced liquidation value (“FLV”) of machinery and equipment in Company X is $1,250,000. It has determined that the net recovery value, after the appropriate pro-rata reserves for potential deemed trust priority claims, legal and receiver/trustee fees, is $1,000,000.

Danbury Capital determines that the net orderly liquidation value (“NOLV”) of the Company’s inventory assets is $1,200,000, after allowing for a fixed reserve for expenses relating to a sale of assets under a receivership or bankruptcy of $300,000.

Danbury Capital determines that the eligible receivables amount to $2,000,000 and agree that because of the quality and diverse nature of the account debtors, an advance rate against eligible receivables of 80% is warranted.

Danbury Capital determines that the underlying real estate, which has prior collateral encumbrances totaling $1,000,000, has a “go dark” value of $2,000,000 and, therefore, will provide good “boot collateral” against the total loan facility.

As a result of Danbury Capital’s analysis, total loan facilities of $3,800,000 to the Company are quite reasonable. The proceeds of the loan facilities will be used to retire the Company’s existing Bank loan of $2,000,000, leaving $1,800,000 to be used as working capital to fuel the Company’s growth both organically and by way of a strategic acquisition. The Borrower is responsible for all legal, appraisal and third party due diligence expenses.