Corporates have a wide range of financing tools at their disposal, depending on their industry of purpose of the financing.
Vision Finance employees have been advising corporations for many years, identifying various attractive and suitable capital raising methods, and assisting clients with their growth plans.
Below you will find description and our open take on various capital raising options.
At the bottom of this page you will also find our Capiral Raising Handbook.
1. Senior Debt: Loans
Loans are often very attractive to the issuers as they offer low spreads and relatively easy arrangement process with the presence of the syndicate of banks. Loans tend to have short 1 year maturities, with few clients being able to obtain 3 year transactions. Loans are often secured by the underlying assets of the company, making them somewhat senior to the Bonds market.
While it is difficult to remark the loans, as they are normally booked on balance sheet of the lending banks at nominal values (accrual accounting and use of reserves to cover for potential loses), loans can offer an opportunity to be extended in the events of the dire straits. Currently it appears that number of Russian loans are being extended on the ongoing basis.
Lenders will not normally tell you this directly, but with the skillful negotiations you might be able to extend the loan maturity, as default is very costly primarily to the lending bank (and the bankers who signed off on the transaction in the first place). Skillful borrower hence has a significant room to negotiate the loan terms.
Vision Finance has extensive experience in negotiating loan extensions by Emerging Market clients.
2. Senior Debt: Bonds
Bonds have been for a long time popular with corporations, enabling them to reach a wide and diversify group of investors.
Bonds also have one more feature that is to the benefit of the issuers, albeit it is rarely spoken about. In the events of dire straits, the bonds being mostly mark-to-market securities, trade at a significant discount to par values, in a way almost behaving like a "senior equity" element of the capital structure.
Bonds tend to have maturities of 3 - 5 years, with some blue chip issuers being able to issue longer dated paper.
The issuing costs of the bonds vary between 300,000 - 500,000 usd, depending on complexity and jurisdiction, and not including the arrangers fees.
For a fixed fee, Vision Finance will monitor the arranger selection process, work, costs, and fees discussion, ensuring that your bank pays the minimum fees, while enjoying highest quality of service and low legal fees (if they are not needed).
3. High Yield Bonds
In the situations where companies are highly leveraged (usually EBITDA ratios of 3 - 6 x), the use of High Yield bonds might be needed. These are designed using the special covenants which aim to reduce the leverage ratios of the company, and in any case make it difficult to increase them.
In addition to HY bonds, corporates can further issue PIK (payment in kind notes), as well as warrants that will further enable it to grow.
A frequent reason for the issuance of the HY business is due to acquisitions that the company plans to make, especially if the acquisition is larger than the acquiring company.
4. Convertibles and Exchangeables
Convertibles are bonds that at the option of the bond holder are transferable at the predetermined conversion rate into the equity of the company. Having debt quality and senior protection, but upside from the equity in the business, this is a frequent method of financing for the companies that are large enough to raise debt, but need to offer equity optionality in order to reduce the interest rate.
Not that many bankers will admit to this, but in pure economic theory no corporate should ever issue Convertible securities (unless it has no other options). More frequently then not, convertibles are sold to the specialized convertible investment funds, who strip out the credit risk of the bond, and subsequently delta hedge the equity risks, making most of the money on purchasing cheap volatility. The bond element is secondary to the trade. The delta hedging process frequently means initial reduction in equity valuations (indeed often part of the deal to do the convertible is to lend the equity so that it can be sold short), as well as fairly high market volatility due to the presence of underlying hedges.
Some investors on the other hand, instead of convertible are willing to take warrants, bu as they rarely monetize their value, this is a much less destructive way of raising financing. Alternatively issuers can consider issuing separately equity and debt.
Another concern with convertibles is that they are generally difficult to buy back, as they have been already split and their "holdings" are difficult to combine. This was a particular problem during the credit crunch, when number of companies were interested in buying back their own debt as it was trading at the discount, and as equity prices were low. In practice however it is not easy to trace the holdings of these assets.
Of course the use of Convertibles needs to be analysed on the case by case basis. Vision Finance will provide you with the fair opinion on the options that your company has.
Exchangeables are debt securities that are similar to convertibles, with the difference being that the debt can be converted into the shares of the company other than the issuing company (usually a subsidiary).
Selling equity in the company is a decision with which many owners do not feel lightly. Particularly if the company is taken public, many owners have concerns over the needed disclosure levels that are required by the exchanges.
Raising equity however can be a great way to enable the firm to raise financing for the acquisitions, or as a exit strategy. Markets often have a strange way of valuating companies, and at times owners might think that they are getting the offer that is simply too good to refuse. By listing the company they manage to establish a very high market valuation, which will then enable them to sell the rest (possibly controlling stake) at the levels indicated by the stock markets. In addition, from the view point of the owner, as soon as the shares are traded and fairly liquid, he/she is able to obtain equity financing on their remaining stake, which often is attractively priced, certainly below the assumed return on equity rate.
Vision Finance offers a holistic approach tot the issue of selling equity in the company, enabling you not only to ensure that you sell the stake at the attractive levels and with the low levels of commissions, but also so that the sale is in line with your long term strategy for both the company and the raised funds.
For instance, despite the difficult market conditions Vision Finance has information about the banks and financial institutions that are still involved in the Equity Financing activities.
6. Project Finance
Particularly interesting method of financing for the corporates that are building significant projects or plants is Project Financing, where the financing is customized to the project itself.
Vision Finance will assist corporations with matching the cash flows from the project to the repayment of the loans, and where needed to the hedging of the revenue streams (mining, oil, even refining margins).
Subsequently a process of raising financing is made, and Vision Finance has direct access to the key lenders in this area.
The key advantage of the Project Financing financing is that it is long dated (upto 25 years),and that the interest rates tend to be attractively low.
7. Export Finance
Commodity producing companies have the ability to raise money via export financing, which is basically financing secured by the proceeds from the sold products of the company. Frankly speaking at Vision Finance we always had a problem understanding the rationale behind this type of financing, as we would imagine that in the event of the bankrupcy the exports would also stop, yet number of banks do not agree with us, and they offer this form of financing at the very attractive levels.
Vision Finance will assist you with the establishment of the right right offtake agreements and subsequent financing on the back of it. This represents an additional layer of financing, that normally would not be possible to do.
8. Structured Financing
There are various other forms of financing that Vision Finance can structure for you.
If you are a commodity producer, you might want to raise debt, where the repayment profile (capital or coupon) will be linked to the level of the underlying commodity that you sell. In this way you can protect your cash flows in the event of the sudden decrease of the value of the commodities.
On the other hand if you are an utility company, which often is via regulations hedged against the increase in inflation, you might want to raise financing offering investors coupons linked to the inflation. Currently inflation products are in high demands
Vision Finance can also assist you with raising money backed by a security, such as a long term cash flow, real estate or some steady income (lease agreement, patent rights, etc).
9. Other Side Services
Vision Finance can also assist you with debt buybacks. Please see our brokerage services offering.
Vision Finance can also assist you with rating advisory process, as well as the preparation of the company for the issuance, including establishment a roadmap incorporating accounting standards, comfort letters, legal opinions etc.
Finally an important part of Vision Finance's work is negotiating the guarantees with government and foreign development banks and export agencies. Number of projects are suitable for obtaining of the guarantees, as they are either strategic, or use a lot of important elements.
Vision Finance for instance has good relations with the export agencies in China and other countries.