ALTERNATIVES TO TRADITIONAL BANK FINANCE JOINT VENTURES, COLLABORATIONS AND OTHER STRUCTURES

8 OCTOBER 2012

BY JONATHAN WATSONPARTNER, MFB SOLICITORSTEL: +44 (0)20 7330 8000MOB: +44 (0)780 1736 148

M F B

SHIPPING AND THE LAW 2012

Private Finance versus Bank Finance

a) What advantages are there, to private finance as opposed to traditional bank finance?

b) Assessment of Risk – possibly a more commercial approachc) A co-venturer may better understand the underlying businessd) A co-venturer may see advantages to its participation in the

business that would not be relevant to, or of interest to, a bank - such as economics of scale and access to new markets/customers

e) Potentially lower expectations re security and fewer pre-conditions to financing

f) A common interest in further funding

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INTRODUCTION

What is a “Joint Venture” business

a) Any commercial arrangement where “two or more economically independent entities participate together to share the risks and rewards of a joint enterprise”.

b) Examples:

i. The pooling arrangement

ii. Demand-side joint ventures

iii. Supply-side joint ventures

iv. Project-based collaborations

v. JVs as a condition of business

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Headline Issuesa) Parties

b) Shares(i) percentage participation(ii) Form of ownership

c) Decision Making(i) How will the parties co-operate

in the decision-making process?(ii) who has the final say in the event of a

disagreement?

d) Scope of JV Business - in terms of geography, duration, business type

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Structuring your Joint Venture

e) Initial Contributions – who will contribute what to the business in terms of cash, assets, personnel and

so on, to set it up?

f) Responsibilities

(i) Funding a cash shortfall

(ii) Reorganising the venture to accommodate further

investment by one or both parties

g) Exit

(i) voluntary/pre-planned exit

(ii) compulsory exit – default, change of control, insolvency

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A joint venture company or “corporate” joint venture(i) Legal entity on its own right(ii) Shareholders have limited liability

Partnerships

(i) the legal effect of a business relationship(ii) partners have joint and several liability

Contractual Joint Ventures

(i) a relationship defined by contract(ii) no separate legal identity

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FORMS OF JOINT VENTURE

Financing Issues – Debt versus Equitya) Essential differences

b) An equity funder’s comfort that its investment will be recouped comes from its participation in the business

Conclusiona) Joint ventures/collaborations as a way of getting bank

finance

b) Other alternatives to bank finance.

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Jonathan WatsonMFB SolicitorsFishmongers’ Chambers1 Fishmonger’s Hall WharfLondonEC4R 3AE

www.m-f-b.co.uk

THANK YOU