Venture Loan Terms

By Dennis McCarthy – (213) 222-8260 – dennis@mbsecurities.com –

The law firm, Latham & Watkins, has been a great source for valuable webinars. Recently, I highlighted one on preparing for the 2013 proxy season (link).  This time, however, Latham produced a useful print article on venture loans.

 A venture loan is a niche loan used by private companies, often venture-backed, to get capital which is less expensive than equity.

In the article, the authors provide a list of deal terms and valuable commentary as to what is most common, in their experience.

I was surprised to learn about a “change in management default”, apparently a frequent term.  But the article covers many issues including typical loan maturities, covenants, collateral, prepayment provisions, etc.

Again, thanks to Latham & Watkins for continuing to provide helpful materials on the capital markets.

As always, please contact me to help your company to complete any capital market project.

Link to article: Checklist of Venture Loan Terms with Commentary
Google

Interest Rate Risk – “Preaching to the Choir”

Dennis McCarthy – (213) 222-8260 – dennismccarthy@ariesmgmt.com

“Preaching to the choir”.  In this case, the choir is me.  It seems that every commercial banker I meet, tells me to advise my clients, or anyone who’ll listen, to lock in today’s low interest rates.

When I ask, “what’s the risk?”, I get a lecture that we’re in an interest rate bubble and that despite the Fed’s announcement about the Fed Funds rate, business loan rates will likely rise, especially after the election.

When I confess that I not only believe them but share their concern, I ask “what should a company do to lock in these low rates?” 

Since most companies have floating rate business loans, the bankers’ most common recommendation is to enter into a swap arrangement to fix the rate.

The cost of the swap, especially after tax, is considered very low cost insurance relative to the risk of a rise in interest rates.

A swap is not the only way, however.  Some bankers recommended fixed rate term loans or even public bond issues if the financing is large enough. 

One of my clients raised its first high yield bond last week so I’m doing my best to help companies to reduce interest rate risk.  My banker friends would be pleased that their preaching paid off.

I can help your company to lock in low current interest rates.  Please contact me.  Thank you.

Visual Interest Rate History

On Youtube, next to my posts about interest rate risk such as “Behind the Headlines on Interest Rates” were a series of videos which visually chronicle the history of US Treasury interest rates along the maturity curve for the last 50 years with commentary by Dr. Donald R. van Deventer, founder of Kamakura Corporation. Displayed above is one of the videos entitled, “50 Years of Forward Rate Movements”.

In a great example of a picture is worth a thousand words, or in this case, 12,300 days of data, one can quickly sense (i) historical levels of benchmark US Treasury interest rates, (ii) the variations from the expected or classical term rate structure (which is more common than one would think), and (iii) the amazing volatility in benchmark US Treasury rates.

As my post “Behind the Headlines on Interest Rates” explains, there’s more to what a company pays in interest rates than just the benchmark US Treasury rates but this reveals the variability in those benchmarks themselves.

My thanks to Kamakura Corporation for creating these videos.  The company’s Youtube channel is www.youtube.com/user/kamakuracorporation and its website is www.kamakuraco.com.

Offer Yield Securities – What Investors Want

dennismccarthy@ariesmgmt.com

(213) 222-8260

This is the second in a series of posts about how a company can best  respond to our current capital markets environment.

Frequently, our clients express their frustration that the equity market is so volatile now that investors seem reluctant to act.  Many investors are unsure whether they’ll get a positive return on their investment.

This has driven many to seek out securities with a yield, maybe interest on debt or a dividend on equity.

Seeing this, we’ve come up with a transaction which responds to investors’ current preferences.

We’ve advised companies to offer their common shareholders a new yield-oriented security in exchange for their common.

We’ve tailored the exchange offers to fit our client’s specific circumstances, there are a number of variations available.

The key is that our clients offer what is in great demand, a yield security, in exchange for what seems less in demand, plain common stock.

We’d be happy to discuss this idea with you to determine whether it works in your situation. 

Please call me or email me.  Thank you.

dennismccarthy@ariesmgmt.com

(213) 222-8260

Capitalmarketalerts.com

Living with No Growth

dennismccarthy@ariesmgmt.com

(213) 222-8260

Lately, I’ve been struggling with what it will mean to live in a world of slow to no growth.

First, I tried denial.   There can’t be a world without growth.

Pick up any company annual report or analyst research report, they always project growth.

It’s in our Wall Street DNA.

We need growth to cover our costs, to justify higher salaries, to reward our shareholders?

But, what if, as is now widely expected, we face a global slowdown for our near-term future?

How do we behave in a slow to no growth world?

We’re going to have to rethink many of our basic assumptions. Here are a couple which come to mind.

First, I think cost control will become more critical without revenue growth to bail us out.

Will this trigger a power shift in companies?  Will the path to become CEO now run through accounting?

Second, I think that, without growth, current cash flow is king.  There’ll be more skepticism about the promise of future cash flow.

Will this spark a rash of corporate acquisitions as large, cash-flowing companies gobble up companies with no or low cash flow?

On the financing front, with slow to no growth, will companies borrow more to get as much financial leverage as possible.

Or, will equity securities change?  Will we see more companies begin to pay dividends or do regular stock buybacks to pay a current return to their equity shareholders.

These are just a few ideas.  There are many more potential implications.

Please contact me to discuss the capital markets implications for your company.

My contact information is below. Thank you.

dennismccarthy@ariesmgmt.com

(213) 222-8260

Capitalmarketalerts.com

Slow Road Ahead

Living with slow to no growth