Q: What are the benefits to attaining the investment capital I require for funding my enterprise, through Tenet’s Modified Mezzanine Fund?
A: Our investment model, for the qualified applicant, is not only cheaper than traditional venture capital, but also completely bypasses the complicated equity, voting rights and profit sharing redistribution; as we do not require an equity interest, nor do we interfere with your executive structure by requiring board seats or other decision making powers as a component of our underwriting criteria. The cost of our capital is generally less expensive than other mezzanine funds, and also less expensive than Bridge financing alternatives.
Q: How do I get started?
A: Please complete and submit the form on our Checklist Page.
Q: What are the rates and terms associated with your investment capital?
A: Our mezzanine structure is based upon our partnering with the applicant’s bank, whereby we provide the investment capital and the bank provides the commercial credit facility that takes us out after one year; to be refinanced by any one of several refinancing options (i.e. Structured Finance offering, Capital Markets offering, Senior Debt, etc.). Based on an average term of 10 years for all refinancing options other than an equity offering, and assuming current credit market rates at 5% for 10 years, the cost of our capital’s adjusted equivalent rate is approximately 12.71%.
Q: How does the cost of your capital compare to the alternatives?
A: For the qualified applicant, our capital is at a lower cost than most mezzanine funds, which generally look to attain rates between 20% & 30% APR, prior to equity conversion. Our capital is also less costly and less onerous than the terms given by bridge lenders. Venture Capital requires a new equity issuance, and controlling voting rights, which is generally considered to be the most costly form of raising capital.
Q: What’s the minimum investment you are willing to consider?
A: The minimum is usually an investment of $30 million dollars.
Q: What’s the maximum amount you are capable of investing?
A: We can invest over $10 billion dollars on a scheduled basis; ahead of your burn rate.
Q: You indicate that you are a global company. In which currencies are you capable of investing?
A: USD ($) or in EUROS (€)
Q: Do you have a bank that you can introduce me to, that understands your procedures?
A: There are many commercial banks that are familiar with our process, however, the financial relationship between the applicant and the credit underwriting bank, is paramount. This point always holds true; because like most mezzanine funding, the underlying risk mitigation is a function of the credit that can be underwritten on behalf of the fully funded applicant’s new equity value (our investment on their balance sheet).
Thus, it is inherently difficult to accurately evaluate the delta in an enterprise’s equity value (post-investment), for the applicant seeking a new banking relationship, when the credit underwriting bank has no historical credit relationship with the applicant. The one exception to this rule is when the applicant is fortified by governmental subsidies or guarantees that are capable of front running the applicant’s own credit stature, or lack thereof. One caveat is, that in our experience, the aforementioned exception must also be of a significant magnitude ($300 million plus in underwriting) to compel a bank to go through the onerous process of evaluating, and establishing, a new relationship with a client, for the purpose of underwriting a massive new credit facility for that client.
Q: What type of bank can I approach, and what is a Money Center Bank?
A: Any bank that has an investment grade credit rating, and like most money center banks, a global presence with full service branches. Per the InvestorGlossary, “The term money center bank is used to describe the largest financial services firms. There is no precise definition of what is a money center bank, but a money center bank has certain characteristics. First, the money center bank has a very large balance sheet, much larger than even a mid-sized regional bank. Second, the money center bank is involved in all types of commercial lending and related services. Third, the money center bank is involved in not only national, but also international money markets. Fourth, the money center bank will likely have a physical presence in some, if not all, of the major financial centers of the world outside its country of origin. Money center bank cities include such primary locations as London, New York, and Tokyo as well as secondary financial centers such as Hong Kong, Toronto, Paris, Chicago, San Francisco and Zurich. Any money center bank list should include ABN AMRO, Barclay’s, BNP Paribas, Citigroup, Deutsche Bank, HSBC, JPMorgan Chase, Mitsubishi Tokyo Financial, UBS, and Bank of America as archetypes.” By including your historical credit relationship information on the Checklist page, we will be able to determine whether the bank you intend to approach, will be acceptable.
Q: Why is my bank indicating that it does not do this type of financing?
A: The interpretation of this response is patently incorrect. All commercial banks underwrite commercial credit, and all commercial banks will accept legally transferred deposits; it is their raison d’être. Notwithstanding, we can assure you that you received this response due to one, or both, of the following reasons: One, you have miscommunicated with the bank by either speaking with the wrong person at your bank, or by indicating that the credit facility has to be issued prior to the commitment of our funds. In addition, you may have failed to mention that we transfer the funds per your bank’s directions, and allow for the bank to both fund control the funds (per your project’s, pre-negotiated, disbursement schedule), and cash manage all of the unused balance. Two, your bank has determined that you simply do not qualify for the commercial credit portion of our process (please refer to our Methodology page). It is important to remember that we are a Mezzanine investor, and not an Angel, or early stage VC, investor. We invest in companies, and/or principals starting a company, that are seasoned. Thus, our cash investment is not all that you should have, in hand, when approaching your bank to apply for credit. You must have, in addition to our funding commitment, a foundation of credit, based on your current equity evaluation, with your bank; either a historical credit relationship, and/or some other forms of assets or collateral. The credit underwriting bank must be able to determine the increase in equity value that will directly coincide with the investment of our capital. Please refer to other sections of our FAQ to review what other forms of assets/collateral may be considered by your bank when evaluating your new equity value; as the basis for the credit facility you have requested they underwrite.
Q: Who do I talk to at the bank that will understand what I am requesting?
A: Generally speaking, someone in the commercial credit division and/or Structured Finance department will be able to help you.
Q: I could use a little help in discussing this with my bank, can you assist me with these communications??
A: Absolutely. We have a dedicated staff of highly experienced commercial bankers with extensive experience in commercial credit underwriting, structured finance, and compliance. We can help direct the preparation of your application, and take calls with the credit officer reviewing your credit application.
Q: Does my credit facility have to be issued prior to funding?
A: No, because our funds are cash on deposit and not credit lines, we are capable of committing our investment capital as part of the credit underwriting process; prior to the credit being issued.
Q: How does the change in equity value (delta), after you invest, affect my application for commercial credit?
A: The value of the equity of your enterprise will likely be calculated using comp models rather than the discounted cash flow model. The comp model will consider the market value of others in your industry, and evaluate your business based on Enterprise Value, Revenue, EPS, Gross Margin, Operating Margin, etc. Our investment, on your balance sheet, will make a significant upward change to your Enterprise Value. The question is how much change will our investment capital make when your enterprise’s equity is evaluated by a bank underwriting your commercial credit facility. In other words, if we invest $60 million into your enterprise and the value of your enterprise is only $60 million after our investment, you will not be able to be underwritten for a credit facility equal to $100 million. Please remember, as Mezzanine investors, our investment must be that last critical milestone, and must be accretive to the enterprise value on a multiple basis; not just dollar for dollar. This multiple increase in equity, for every dollar we invest, must occur so that a commercial bank can justify underwriting a credit facility for more than just the cash you now have on hand.
Q: What can I do to enhance the multiple of my enterprise’s equity value?
A: Your enterprise should have some form of assets; in the form of either hard assets, credit enhancement, completion or performance guarantee(s) from contractors of the project(s), a fee/usage contract, PPA, off-take agreements, governmental and/or other such supporting guarantees, or any other contributions, above and beyond our investment commitment, that will make your equity scale, and therefore be valued at a higher credit level.
Q: My sovereign or NGO guarantee, and/or subsidy, from the SAGIA, IDB, MIGA, and/or other such organizations, is not being treated as the credit enhancement I would expect it to be?
A: Generally speaking, when qualifying for the SAGIA , MIGA, IDB, ADB, AFESD, AMF, IAIGC, and/or other form of credit enhancement, you are required to have already secured the funding behind your project; as the fulfilment of your end of the agreement. Thus credit enhancements, or subsidies, such as those from the SAGIA, or MIGA, are not able to be valued by a bank prior to their bilateral execution; which may not occur until you can demonstrate, to the issuer of the subsidy/guarantee, the availability of the funding required to adequately commence the initial phases of your project. This is your traditional Chicken or the Egg problem. Our investment commitment is one solution for extracting the value from these types of guarantee(s) and/or subsidies. Specifically, our investment model, due to our ability to commit capital before the credit is issued, satisfies the capitalization contingency for the issuer of the subsidy/guarantee. Therefore, the commitment of our capital transforms the aforementioned guarantees/subsidies from being unqualified paper agreements, Drafts, or Letters-of-Intent, to actionable/executed contracts that can be utilized for the purposes of commercial credit underwriting. We know this, because we have been through this process many times.
Q: What if my project takes more than 13 months to complete and cash flow; prior to the commencement of my first debt servicing payment?
A: If your rollout and cash flow time frames appear to not come online in time to allow you to commence debt servicing at the end of 13 months from our investment date, then you may want to increase your investment request, so that we may augment both the amount we invest, and the size of your credit facility. This will allow you to have a reserve of additional capital in order to maintain current your payments for the credit underwriting bank’s anticipated debt servicing schedule.
For example, if you can work with the credit underwriting bank to allow for us to invest more and, by ratio, increase your credit facility, you will be able to maintain an account balance that can be placed into a completely separate sinking fund account (designated solely for the debt servicing). Additionally, you can commit all interest income from the bank’s cash management of the undisbursed balance, during the draw down schedule of the funds we invested, to accrue into this same sinking fund account.
Or, if your lending bank is willing to work with you, it may allow for a repayment moratorium period that takes into consideration the additional time your enterprise will require in order to cash flow and service the debt.
Q: I am a start up, is there any way that I can qualify?
A: New ventures with substantial support from either the territorial government sponsoring the project, local municipality, or an NGO backing the project, can benefit by utilizing a credit enhancement guarantee, provided by either of these types of institutions, which can be accepted as a backstop to mitigate the underwriter’s risk when underwriting the new venture credit facility. Clearly, an organization with the credibility of the above listed entities would be in a position, if it so decided, to issue such a credit enhancement guarantee, on behalf of the venture. One other option that may be available to a Company, might be the option to have a parent company (a well established company) or a strong credit partner, provide credit enhancement (Guarantor) to the venture, rather than cash, whereby all the capital to be invested will be funded by us.
Q: I don’t have any hard assets or collateral at this time, but I do have a third party who is willing to act as a guarantor in return for equity.
A: Some very respectable, and noteworthy, enterprises can easily qualify for our mezzanine funding, if they were only able to locate and attain a small degree of credit enhancement. To this end, an opportunity exists for an investor, who based on their appetite for a particular investment, would prefer to invest (i.e. acquire equity) in return for enhancing an enterprise’s credit rather than using their funds for direct investment. This theoretically, would allow for an investor(s) to keep their cash in their accounts and lever their credit into investments that will ultimately end up being financed through our mezzanine capital and a bank’s longer term refinancing solution. The credit underwriting bank will release, as the enterprise attains early stage milestones designated by the bank, the requirement for the credit enhancement; so that the investor will have attained equity ownership in the investment without having to go out of pocket to do so.
Q: At what point in time do you communicate with my credit underwriting bank, and indicate to them that you have segregated the funds for my enterprise and are ready to invest?
A: When your credit underwriting bank indicates that it is ready to do so.
Q: How long does this process take?
A: When your credit underwriting bank indicates that it is ready to proceed, we will confirm funds within 24 to 48 hours and allow for the two banks to communicate and establish the settlement schedule. Generally, this should not take more than a week or so, and is mainly driven by the compliance requirements of the credit underwriting bank.