Case Study: Live Event Production Company Financing
A leading nationwide provider of technical expertise and equipment for live production with multiple locations in the US was determined to take advantage of significant growth opportunities.
To convert these opportunities into revenues while maintaining strong margins, the company needed to materially increase its inventory of equipment. An alternative and more costly option would be to continue to sub-rent equipment, at the expense of satisfactory margins.
Acquiring equipment ahead of future contract revenues can be a challenge, especially when current cash flow may not support future maturing debt associated with new loans. Many lenders are not interested in spending time to look at the whole picture or work with their clients to learn and develop creative solutions.
Complicating matters, contract opportunities are often relatively short in comparison to loan terms that are necessary to spread the cost of investing in inventory over longer periods. Relying on the ability of the company to continually renew contracts or re-deploy equipment into new productions can cause apprehension by lenders.
Additionally, many lenders are accustomed to financing assets that remain in one location and prohibit them from being removed without their prior consent. Equipment intended to be in transit around the US creates a security interest concern.
Task at Hand:
The company needed to find an experienced lending partner that thoroughly understood the specifics of their business and the industry they compete in.
It was paramount that this lending partner respond quickly by providing the initial loan to address pending opportunities but equally important, to keep pace with their commitment to growth going forward. A single bank or financial institution would certainly run into exposure or legal lending limitations given the volume of capital expenditures the company had planned over time.
The company reached out to McKinley Capital Finance, a direct lender as well as having access to capital through a variety of financial resources.
The first step McKinley Capital Finance took was to overcome the obstacles that would otherwise prevent the company from securing bank credit. Analyzing historic renewal rates and utilization rates proved to mitigate risks associated with the term differences between contracts and loan repayment. Understanding the specific details of upcoming contract opportunities, customer profiles, the impact of key hires and geographic expansion plans, provided the necessary support for their financial projections. Concerns about the mobile nature of the assets were offset by learning about the company’s sophisticated inventory tracking software that includes bar coding every item of equipment right down to wiring and cables. During this process, we gained a high degree of respect for the company’s management.
Refinancing Benefits Included
Releasing current assets for a future line of credit
Substantial decline in sub-rental expenses
The elimination of financial covenants