abl and other forms of international finance. overview: abl and other forms of international finance...
TRANSCRIPT
ABL and other forms of International Finance
2
Overview: ABL and other forms of international finance
• Purchase order financing• Supply Chain financing• Vendor leasing• ABL and inventory financing• ABL and equipment financing• Equipment finance and inventory financing• Factoring and inventory financing• Logistics financing and factoring• Multi-jurisdictional financing
3
Overview: ABL and other forms of international finance
Purchase Order financing
Purchase Order Finance is short term transaction-based financing that allows companies to purchase or manufacture goods that have been presold to their credit worthy end customers.
Supply Chain Financing
The integration of receivable and payable purchase and discounting schemes that can include inventory financing and equipment financing all designed to deal with the inefficiencies and opportunities in a clients supply chain.
Overview:ABL and other forms of international finance
Supply Chain Finance
Contract purchas
e
Multijurisdictional
financing
Purchase order
financing
Logistics financing
Asset Based
Lending Vendor leasing
Factoring
4
Vendors OEM END USERS
Cross Border Supply Chain
5
Overview: Supply Chain Finance
Asset Based Lending, factoring and leasing go hand in hand to deliver a supply chain financing solution.– Cater to the entire flow of Clients supply chain
– Vendor settlement– Payables acceleration– Receivable funding– Inventory financing at multi-vendor hubs– Floor planning– End User financing
Overview: Supply Chain Finance
6
Specialization Sector specificSolutions based
Low cost to serve Integrated business processes
Technology connection with clients
Client Self help essential for superior customer service and lower cost to serve
7
Overview: ABL and other forms of international finance
Vendor Leasing
Also called sales-aid finance, vendor leasing in the U.K. features relationship management, back-office support and marketing assistance. Private-label (“dual naming”) vendor leasing is also utilized.
Asset-Based Lending and Inventory Finance
Value-added resellers in the U.K. information technology and telecommunications markets make use of asset-based lending (invoice discounting) in conjunction with, or in lieu of inventory finance, especially when they have a high percentage of “outbound” sales.
8
Overview: ABL and other forms of international finance
Asset-Based Lending and Equipment Finance
Term debt with equipment as collateral is often desired in conjunction with short-term revolvers that are secured by accounts receivable and inventory.
Equipment Finance & Inventory Finance
Manufacturers distributing equipment through dealer networks in the U.K. may have a need for both inventory financing and end-customer equipment finance. Such programs can provide “dividends” that vendors apply toward future inventory purchases or paying down interest charges.
9
Overview: ABL and other forms of international finance
Factoring & Inventory Finance
Manufacturers distributing through dealers can borrow on invoices to inventory financing dealers in advance of the due dates. Dealers in turn can be provided with extended-term financing for their purchases from manufacturers.
Logistics, Financing & Factoring
Logistics companies in the U.K. may be able to provide transportation and financing on a one-stop “ship today, get paid today” basis. They provide control and delivery of the goods along with factoring or credit insurance.
10
Overview: ABL and other forms of international finance
Multi-jurisdictional financing
Knitting together a comprehensive cross border financing solution that leverages all available assets.
11
Purchase Order Finance?
• Purchase Order Finance is short term transaction- based financing that allows companies to purchase or manufacture goods that have been presold to their credit worthy end customers.
• Equity alternative enabling companies to achieve sales and profits otherwise not attainable without diluting existing ownership or losing operational control.
• Bridge financing that works alongside a company’s existing financing facility (asset-based lender, factor, or traditional line of credit)
12
How does it work?
• Tool that allows companies to finance large orders that they otherwise couldn’t afford to fulfill on their own due to lack of working capital, supplier credit or availability with a bank or receivable finance company.
• In a typical purchase order finance solution, the purchase order finance company purchases the inventory on behalf of the company using letters of credit, cash, other forms of credit enhancement
• This ensures that the supplier will release the required inventory and allows the company to fulfill sales orders
13
Where does Purchase Order Financing Fit?
• Delivers programs needed to finance the production of inventory
• Provides an equity alternative that enables increased sales opportunities
• Supplies in-depth operational expertise to help achieve a smooth transaction
• Gives businesses a short-term solution to fund the inventory required to complete sales transactions
14
Purchase Order Financing is used to support:
• Sales growth that is outpacing working capital
• Seasonal sales spikes that are straining cash flow
• Inability to obtain an over-advance from current lender
• Suppliers demand an assurance of payment prior to manufacturing goods. This is especially the case with overseas suppliers
• Cash flow gap that exists between payment to the supplier and repayment from the end customer. Suppliers require payment before production starts or prior to shipment whereas end customers demand payment terms once goods have been delivered.
• Turnaround mode or fast growing start-up
15
Candidates for Purchase Order Financing?
• Importers/Exporters
• Distributors/wholesalers
• Manufacturers
• Must provide tangible goods as opposed to a service
Examples of companies recently assisted by King Trade Capital:
• Apparel distributor
• Housewares importer and distributor
• Toys/games distributor
• Furniture importer and distributor
• Vehicle exporter
• Foods manufacturer
16
Identifying a Purchase Order Opportunity
• Client must have purchase orders/contracts in hand from a credit worthy end customer.
• Purchase orders/contracts must be firm orders. No consignment or guaranteed sales.
• Gross profit in the transaction of at least 20%.• Time frame of no longer than 120 days.• Client either produces goods themselves or has
a third party supplier providing a finished good.• Client’s supplier won’t ship unless payment is
received or acceptable payment arrangements are in place (i.e., letter of credit).
• Client has the ability to perform.• Client needs to move fast.
17
Multi jurisdictional financing
• Complex Corporate Structure
• International Sales Growth
• Sales and Collections in Foreign Currencies
• Foreign Credit Risks
• Increased Liquidity Needs
18
Solutions Offered by a multijurisdictional Lender
• Resources to Structure Complex Deals
• Experience with International Markets
• Expertise in Foreign Exchange
• Understanding of Foreign Credit
• Ability to Support Capital Needs
19
Important things to think about:
• Find an Experienced Partner
• Create an Inter-Creditor Agreement with an Experienced Partner
• Set expectations and define individual responsibilities
20
What makes a partnership successful?
• Maintain Open and Frequent Dialogue
• Support Your Partner
• Support the Client’s Growth
21
Speaker Contact Information
ANR Partners, LLC
Richard PalmieriManaging Director
415 Pine StreetPhiladelphia, PA 19106Tel: 917-863-9661
Speaker Contact Information
Edward P. King
5944 Luther Lane, Suite 300
Dallas, TX 75225
Tel: 214-368-5100
Fax: 214-368-5105
www.kingtradecapital.com
23
Speaker Contact Information
Sami AltaherExecutive Director
15 Berkeley StreetFifth Floor
London W1J 8DYTel: +44.020.7016.7724
http://www.fgifinance.com/
24
ThankYou
Purchase Order & Trade Finance Presentation
Edward P. KingFounder and Managing Partner
Goals for Discussion• Define Purchase Order Financing• How does Purchase Order Financing work and
where does it fit?• How King Trade Capital is different from a bank• How King Trade Capital is different from a
factor• Identify the benefits of purchase order finance
to clients and A/R lenders• What to look for in identifying a purchase order
finance opportunity and initial questions to ask• Who is King Trade Capital?• How King Trade Capital works with A/R lenders• Examples of transactions
What is Purchase Order Finance?• Purchase Order Finance is short
term transaction- based financing that allows companies to purchase or manufacture goods that have been presold to their credit worthy end customers.
• Equity alternative enabling companies to achieve sales and profits otherwise not attainable without diluting existing ownership or losing operational control.
• Bridge financing that works alongside a company’s existing financing facility (asset-based lender, factor, or traditional line of credit)
How does it work?
• Tool that allows companies to finance large orders that they otherwise couldn’t afford to fulfill on their own due to lack of working capital, supplier credit or availability with a bank or receivable finance company.
• In a typical purchase order finance solution, the purchase order finance company purchases the inventory on behalf of the company using letters of credit, cash, other forms of credit enhancement
• This ensures that the supplier will release the required inventory and allows the company to fulfill sales orders
Where does Purchase Order Financing Fit?
• Delivers programs needed to finance the production of inventory
• Provides an equity alternative that enables increased sales opportunities
• Supplies in-depth operational expertise to help achieve a smooth transaction
• Gives businesses a short-term solution to fund the inventory required to complete sales transactions
How Is King Trade Different From a Traditional Bank?
• A bank lends money based on a client’s balance sheet and income statement—financial ratios, net worth, etc., as well as cash collateral, certificates of deposit, and real estate. King Trade Capital bases its funding not solely on the income statement and balance sheet, but rather on the client’s ability to perform and the credit worthiness of the client’s end customers.
How Is King Trade Different From a Traditional Bank?
• A bank is capped as to the amount it will be willing to loan to a client determined by the client’s balance sheet and income statement. The amount of funding that King Trade Capital provides is dependent on the size of the purchase order from the end customer and the client’s abilities to perform. King Trade Capital provides financing for up to 100 percent of the cost of goods related to a specific purchase order.
• King Trade Capital is a privately held investment company that is able to react quickly and move faster than banks and other traditional lenders.
How Is King Trade Capital Different From a Factor?
• A factor advances on valid accounts receivable once the product has already been delivered and accepted by the end customer. King Trade Capital bridges the cash flow gap between the supplier and the end customer. King Trade Capital will secure payment to the supplier prior to the goods being produced and shipped. Additionally, King Trade Capital will also consider funding direct labor, freight and other logistical needs of fulfilling a purchase order.
33
PO finance vs. traditional inventory lending
PO Finance Traditional Inventory Lending
Definite sales transactions at a known time and amount – seasonal or incremental
Potential sales volume at an unknown time and amount – based on projections
Advance up to 100% of the cost of inventory – may advance for overhead and labor in certain situations
Advances 40 – 50% of the cost of inventory – advance against labor and other operations
Monitoring is intensive and transactional in nature
Monitoring is passive and relationship driven
Quick turning transactions of 30 – 90 days
Differs by industry but inventory many be on-hand for a longer period of time
Purchase Order Financing is used to support:
• Sales growth that is outpacing working capital
• Seasonal sales spikes that are straining cash flow
• Inability to obtain an over-advance from current lender
• Suppliers demand an assurance of payment prior to manufacturing goods. This is especially the case with overseas suppliers
• Cash flow gap that exists between payment to the supplier and repayment from the end customer. Suppliers require payment before production starts or prior to shipment whereas end customers demand payment terms once goods have been delivered.
• Turnaround mode or fast growing start-up
Who is a good candidate for Purchase Order Financing?
• Importers/Exporters
• Distributors/wholesalers
• Manufacturers
• Must provide tangible goods as opposed to a service
Examples of companies recently assisted by King Trade Capital:
• Apparel distributor
• Housewares importer and distributor
• Toys/games distributor
• Furniture importer and distributor
• Vehicle exporter
• Foods manufacturer
Benefits of Purchase Order Finance to Client
• In order to fully understand the benefits of purchase order finance, we need to first set the stage for the common dilemma. First, the client receives a large order from its credit worthy end customer(s) and/or the client’s sales are seasonal and deliveries are concentrated in a defined period of time.
The dilemma1. The client is a start-up.2. The client is cash strapped due to:
A. Start-up nature.B. Balance sheet doesn’t support additional borrowings from its senior lender.
Benefits to Client ContinuedDilemma continued…
C. Past bumps in the road such as:I. A/R dilution.II. Loss of a large customer.III. Reorganization/new ownership.IV. Bad operating results.
D. Lender fatigue.E. Bankruptcy.F. No down payment from end customer.G. No credit terms from supplier.H. Mismatched cash flow-supplier needs to be
paid immediately; however, end customer demands payment
terms.
Benefits to Client Continued• The solution — Purchase Order Finance.• Benefits:
1. Fulfill deliveries on time.2. Continue to grow unencumbered by lack of working capital and/or credit with suppliers.3. Replacement of equity. Purchase order
finance provides. working capital where banks cannot. An
equity placement would give away permanent
ownership.4. Build the balance sheet.5. Structure safe transactions, especially with
overseas suppliers.6. Keep clients’ suppliers and end customers
apart.
Benefits to A/R Lenders• Help keep an existing client and help that existing client
continue to grow.• Help win a new client.• Reduce the need to be forced into an “over advance”
situation where reserve and/or desire is not there.• Purchase order finance provides a structure to ensure
successful deliveries and quality A/R through:1. Due Diligence - verifications with buyers and accounts payable.2. Structure funding to ensure timely delivery.3. Schedule third party inspections of goods prior to shipment.
• Create additional A/R to help a struggling client grow or get a client out of an “over advance” situation.
How to Identify a Purchase Order Opportunity
• Client must have purchase orders/contracts in hand from a credit worthy end customer.
• Purchase orders/contracts must be firm orders. No consignment or guaranteed sales.
• Gross profit in the transaction of at least 20%.• Time frame of no longer than 120 days.• Client either produces goods themselves or has a
third party supplier providing a finished good.• Client’s supplier won’t ship unless payment is
received or acceptable payment arrangements are in place (i.e., letter of credit).
• Client has the ability to perform.• Client needs to move fast.
Initial Purchase Order Questions
• Copy of the purchase orders in hand that the client needs financing help to fulfill.
• Complete cost breakdown in order to fulfill those orders including freight and duties if needed.
• Complete supplier list in order to fulfill the purchase orders in hand.
• Cash flow time line showing when financing is needed to purchase finished goods/raw materials, pay for freight, labor needs, etc. in relation to production lead times, shipping and invoicing.
• General information on the client including year end and year to date financials, ownership breakdown, management bios and product information.
Who Is King Trade Capital• We are a purchase order and trade finance
company offering the broadest-based purchase order finance solutions in the country.
• We have been in business for over 19 years with offices in Dallas and New York.
• We are a well-capitalized private investment/finance company.
• We are not a bank; therefore, we are not hindered by the regulations that restrict banks.
What King Trade Capital Does
• Provide purchase order finance to importers, exporters and manufacturers of up to 100% of the cost of goods (<80% of total sales).
• Provide letters of credit to domestic or overseas suppliers for cost of goods.
• Provide cash funding to secure payment for raw material, freight, duties and transaction-specific labor.
• Minimum transaction size of $300,000.00 depending on the opportunity
• Maximum funding size of $20 million
What King Trade Capital Doesn’t Do
• Provide inventory financing where goods are not pre-sold.
• Finance transactions with <20% margins unless the transaction is a quick-turn deal.
• Construction transactions.• Service-only transactions.• Acquisition financing (need to buy equipment or a
factory in order to fulfill purchase orders).• Carry accounts receivable - We need an A/R lender
in place to take our financing out.
What role does the existing bank or factor play?
• After the product is shipped and received by the end customer, the company will invoice and submit that invoice to their bank or factor.
• The existing lender will purchase or lend against the resulting invoice generated from the King Trade Capital financing.
• Available proceeds related to those invoices are remitted to King Trade Capital to repay what is owed and the balance is remitted to the company.
How King Trade Capital Works With A/R Lenders
Logistically• King Trade Capital , client and A/R lender
enter into an “inter-creditor agreement” prior to funding that instructs A/R lender that payments of all available proceeds related to King Trade Capital financed goods are to be remitted to King Trade Capital .
• Once goods have been shipped to end customer(s), the resulting invoice is sent to the A/R lender to be advanced.
• All payments from A/R lender are to be remitted to KTC first, until KTC is paid in full.
How King Trade Capital Works With A/R Lenders
ContinuedLegally.• King Trade Capital files a UCC-1 to perfect its
security interest in the inventory and accounts receivable of client.
• “Intercreditor agreement” specifically spells out KTC’s and A/R lender’s security interests, respectively.
• Once KTC is paid in full on an invoice-by-invoice basis from A/R lender, KTC shall subordinate its interest in those accounts receivable and inventory related to KTC funding to A/R lender.
Importer Dilemma
• KTC was approached by a well-known importer of bed sheets and pillow cases. The client’s existing lender had termed out a portion of their revolving line due to slower sales and covenant violations. The importer had received large seasonal purchase orders from its long-time credit worthy customer; however, it did not have the availability to issue letters of credit to its overseas supplier. KTC was able to assess the company’s ability to perform, the credit worthiness of the end customer and the specific shipping logistics surrounding the delivery.
Importer Dilemma Continued…
• Within a week, KTC was able to issue a letter of credit acceptable to the overseas supplier, as well as set up a repayment agreement with the existing secured lender.
• Goods were produced, inspected by a reputable third party before shipment, and delivered on time to meet the demands of the end customer.
• KTC was taken out of the transaction through an advance on the resulting invoice from the existing lender. The remaining proceeds were used to pay down existing debt, as well as for general working capital for the client.
Domestic Transaction• A Factor contacted King Trade Capital with
a prospective client shipping advertising mailers to individuals in certain Hispanic communities. The client had contracts totaling approximately $950K with credit worthy end customers. The client had terms with the print shop responsible for printing the envelopes and staging them for mailing, however needed postage paid to the postal service before the mailers could be sent. The client had all of the necessary ingredients in place for a successful transaction. However, without prepaid postage, the program would not be able to be completed.
Domestic Transaction Solved• King Trade Capital was able to assess the
transaction’s viability and confirm the contracts with the end customers. The factor approved the individual credits and worked with King Trade Capital to put an inter-creditor agreement in place.
• King Trade Capital funded the postage costs to the print shop which allowed all mailers to be sent out according to the terms of the contracts.
• The factor advanced on the resulting invoices and remitted payment to KTC, thereby paying KTC in full.
• The client was able to satisfy first-time orders with its important end customers.
ANR Partners LLCPrivate Equity, Turnaround and Crisis Management Consulting
Overview
May 10, 2013
ANR Partners
ANR Partners LLC is a private equity, turnaround and crisis management consulting firm. Our approach is highly focused on partnering with our clients to help them achieve success. Our experience allows us to quickly understand issues and deliver results. We seek to improve the efficiency of our client’s business as well as make the process of change as seamless as possible.
53
ANR Partners
Our services are focused on Financial and Business Services sectors.
We offer the superior business knowledge derived from hands-on experience as successful senior executives, at successful companies involved in all types of financing and services.
We understand the specific characteristics of the industries we serve, and as a result are able to provide insight into the particular challenges of companies in these sectors.
54
ANR Partners - Practice Areas
Consulting
Interim Management
Business Process
Improvement
Human Capital Development
Program Solutions &
Design
55
• Market Entry• Business Expansion• Vendor & Captive
Programs
• Strategy• Benchmarking• Market Entry• Operations – Credit• Risk Management• Systems
• Interim CEO• Advisor to
Management• Shareholder Advocate
• Best Practices• Lower costs to Serve• Technology selection &
integration
• Organization Design• Change Management• Culture change survey and
solution design• Management Assessment
Financial Services:– Asset Based Lending– Equipment Leasing– Factoring– Franchise Finance– Inventory Finance/Floor Planning– Logistics/Supply Chain Finance– Insurance Premium Finance
Business Services:– Freight Payment– Billing & Collection Services
Sector Focus
56
Underperforming Business Unit, Division or Subsidiary of:– Insurance Carriers– Brokerage Firms– Community and Regional Banks– Entrepreneurial Finance Companies– Investors in the Specialty Finance field– Commercial Finance and Leasing Companies – Captive Finance Companies
Companies seeking to further penetrate or expand into new markets / services.
Companies positioning a business unit for sale/consolidation.
Client Profile
57
58
Our projects are highly customized and the specific scopes vary widely, but we find that engagements fall into one or more of the following categories:
Strategy Alignment & Repositioning:Evaluate the company strategy relative to the markets it
competes in and develop plans to better align or reposition the company to more successfully achieve its mission. Business Process Review & Improvement:
Analyze the company’s existing business processes to determine whether the current approach to service delivery is achieving the desired level of customer satisfaction and suggest alternatives to improve service delivery through revised workflow/technology. Change Management & Organization Redesign:
Comprehensive enterprise review to identify needed changes to organizational staffing, training, skill sets, and structure to better deliver on the company’s strategy/mission.
Engagements
Companies/Assignments
59
Companies:
• Canon Financial Services, Inc.• Citibank N.A.• Citicorp Industrial Credit• JP Morgan Chase & Co.• Commercial Credit Corp.• Credit Suisse First Boston• CSFB Logistics, LLC• Deutsche Financial Services • Deutsche Morgan Grenfell• GE Capital• PacifiCorp Credit• Schneider Financial Services• Schneider Payment Services• Whirlpool Financial Corp.
Assignments:
• President & CEO of $1.4 Billion Captive Vendor Leasing company
• Chairman of a Technology Outsourcing Company
• CFO of a $1 Billion National Office Equipment Sales company
• President & CEO of an $8 Billion Transportation Services company
• President & COO of a $2.3 Billion Diversified Captive Financial Services company
• Managing Director of Transportation and Logistics Investment Banking
• Chairman of a London based Aviation Merchant Bank and Financial Service companies in Spain, Canada and the UK
Richard P. Palmieri, Managing Director has a track record of visionary leadership and dynamic management and the practical implementation skills necessary to drive rapid, effective and lasting change. Richard has served in a variety of roles: Chairman, CEO, President, COO and CFO. He employs a strong analytical and operational approach to business issues. Richard developed his expertise over the last thirty years working in a wide variety of industries, including financial services, investment banking, consumer products, transportation services, manufacturing and technology. Prior to ANR Partners, he was President and CEO of Canon Financial Services, a subsidiary of Canon USA. His experience includes turnaround and crisis management, mergers, post-acquisition integration, asset sales, syndication, consumer & commercial finance, leasing, business assessment and strategic repositioning.
Mr. Palmieri is a past Chairman of the Commercial Finance Association, a member of the Turnaround Management Association, a member of the
Association for Corporate Growth and a member of the Experts Advisory Panel of the United Nations Commission on International Trade Law
Managing Director Profile
60
61
Thank You
CANON FINANCIAL SERVICES
CONFIDENTIAL | October 2007
Richard PalmieriManaging Director
www.anrpartnersinc.com