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Debt/Capital Restructuring: Value-added Opportunity
Adding value through corporate finance often involves reworking the balance sheet to increase capital and lower costs. The primary objective is often to simply increase or replenish capital. However, we also want to ensure that the structure creates the lowest cost of capital.
In a recent example, a client had underutilized senior debt, stretched payables, factoring and mezzanine debt. The growth the company was experiencing increased the demand for working capital and this need was being served through expensive supplier and sub-debt financing. We identified additional senior debt potential that would allow the company to increase the total capital while significantly lowering the cost of capital.
Through our expertise, we were able to change the capital structure with new senior debt, term debt on fixed assets and a small sub-debt package. The results were significant; we were able to increase total capital by 15% and lower the blended rate from 14% to 9%.
We find most small to medium size firms do not adequately review their capital structures. There are a number of alternatives available that can increase total capital and lower the cost of capital; it is simply a function of having the expert advice needed to execute these strategies. It would be impossible for management to constantly immerse themselves in the corporate finance market, whereas for us, this is our principal activity. With a quick consultation, we can suggest a number of strategies that can be easily implemented to ultimately increase savings for our clients.
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