The Financing Forum Creative Financing: Getting Deals Done in These Uncertain Times

On October 15, 2020, EisnerAmper, Lawrence Financial, Polsinelli, and Scherzer International hosted the biannual Financing Forum, and discussed creative financing on how to get deals done in these uncertain times. Specifically, the panelists explored topics such as the current state of the lending sector, trends seen by asset-based lenders, and lenders’ views on portfolio risks.

Panelists included:

• Haze Walker, Managing Partner, Lawrence Financial Group (moderator)
• Larry Hurwitz, Chairman, Lawrence Financial Group (moderator)
• Rey Abundo, Managing Director, Great Rock Capital
• Brett Horwitz, Managing Director & Head of Operations, Western Region TAB Bank
• Peter Ma, Partner & Managing Director, Colbeck Capital
• Scott Shapiro, Senior Vice President, Gibraltar Business Capital

Current Status of the Lending Sector

Depending on how their portfolios have held up during the pandemic, some lenders are taking a conservative approach, while others are pursuing deals and looking for growth. The ability of lenders to use technology and monitor collateral has helped them support their clients in the current environment. (As an interesting side note: During the forum, attendees were asked about current practices in light of the pandemic – see survey results, below.)  Due to the limited bandwidth of lenders, the smaller and marginal borrowers are the most vulnerable right now and the most in need of help. Smaller borrowers remain concerned about whether lenders will renew their facility or provide the necessary liquidity, when needed. Finding a long-term financial partner to get borrowers (through?) during these uncertain times is a top priority.

To solve liquidity issues in the private equity marketplace, funds have been working with borrowers to create structures that are non-dilutive in nature for equity holders. Private equity funds have seen borrowers push for call protection and ask for performance-based pricing.

Asset-based lenders continue to lend on inventory, even when inventory is the largest asset class on the borrower’s balance sheet. Lenders have been working together with inventory appraisers to perform virtual field exams and virtual inventory appraisals. Since businesses have started to open up, appraisers and lenders have been going in-person to visit facilities. Inventory appraisals currently take between 30 to 60 days from the initial call.

Trends Seen by Asset-Based Lenders

The first trend seen by asset-based lenders are businesses with no credit facilities pre-COVID 19 that are looking for one now, either due to growth or due to decline in sales. Due to the tightening of the debt market, asset-based lenders have been asked to bid on stable companies that are going through a private equity acquisition. Asset-based lenders have also seen opportunities to refinance existing debt issued by commercial banks. The trend noted was that most of the borrowers looking for refinancing had a challenging 2019 calendar year.

Lenders’ Views on Portfolio Risk

• For most lenders, their portfolio has held up well during the pandemic.
• Lenders have some borrowers on high monitoring and are looking at weaknesses down the road.
• There is a higher risk for lenders when there is term debt heavily dependent upon cash flow.
• The trend during COVID-19 has been for accounts receivable starting to stretch out, which represents a challenge for asset-based lenders. Some asset-based lenders have been trying to accommodate clients by offering a three-month grace period for making payments on term debt.
• Transaction values have held up and are stabilized for now.

During the Financing Forum, attendees were surveyed to gauge their opinions on certain current practices.

“How effective do you find video-conferences?”

13.6% -- Great, this is the most effective I’ve been.

29.5% -- Good, slightly more effective.

29.5% -- Okay, not better nor worse.

18.2% -- Worse, slightly less effective.

9.1% -- Bad, least effective.

“Have you started face-to-face meetings?”

68.4% -- Yes, already began meeting in-person.

5.3% -- Maybe, considering making plans.

26.3% -- No, I am not comfortable meeting in-person.

“After COVID-19 are you planning to continue to work remotely or resume commuting to your office?”

42.9% -- Yes, I was ready to go to the office yesterday.

19.6% -- Maybe, I’m uncertain. Waiting to see how it goes for others.

14.3% -- Never, I’ve found my groove and want to work from home forever.

23.2% -- Not applicable, was already working remote.