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| Oct. 7 2005, 4:17 PM ET |
public post by JJR (16  )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1128716226.48.6577105265482&so=200510
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Topic: ACAS
This following is an ACAS deal, I'm curious what interest rates were charged. The Gibson folks didn't want to give up any equity, so no upside with warrants with this second lien loan. There is no way to make 18%-26% (historical mezz target), unless the interest rate charged was very high (very unlikely).
It does appear wonderful for Gibson to borrow most of the senior without having to pay back the principal. I'm assuming ACAS structured their deal as usual and plans on being paid back on some defined schedule. I'm not sure the senior lenders are paid enough when a relatively low interest loan is backed by a combination of real assets and trade names. If I recall correctly, Baldwin Piano went bankrupt years ago...the name didn't help.
October 2005
How Trade Names Were Instrumental In Creating Liquidity For Gibson Guitar
"What's in a name?" Nashville, Tennessee-based Gibson Guitar Corporation recently found out how valuable its trade names are when it secured a $136.2 million credit facility. Its trade names—which include Gibson, Epiphone, Baldwin and Wurlitzer—took center stage in determining how much the music icon could borrow. While it's not uncommon for lenders to use brand names as collateral, the way in which trade names were used in this transaction was unique. As a result, this 111-year-old maker of guitars, banjos, mandolins, pianos, keyboards and synthesized musical instruments was able to optimize leverage while minimizing loan payments.
Hybrid Structure
The Gibson deal exemplifies why an asset-based loan is often an attractive alternative to a cash flow loan. The transaction consists of $83.7 million of senior secured debt including a $72 million revolving line of credit and an $11.7 million term loan. The revolver was based on $17 million in accounts receivable, $14 million in inventory and a maximum of $20 million against the company's trade names. Including the value of trade names in the revolver is a novel approach to maximizing the borrowing base while minimizing monthly loan payments. It's also a structural feature that wasn't offered by cash flow lenders competing for the financing.
The cash flow lenders offered term sheets that included advances against trade names. Each of these bids, however, was structured as a large term loan, creating a lot of debt to service, and thereby decreasing Gibson's financial flexibility. Alternatively, Bank of America Business Capital offered advances against trade names in the revolver. Since there is no requirement to pay down a revolving loan, annual debt service is considerably lower than the amount required by cash flow lenders, and fixed charge coverage is greatly improved. The structure enabled Gibson to leverage its brands without diverting a substantial portion of future cash flow to debt service.
Today's asset-based lenders are doing more deals that include intangible assets as collateral, such as trade names, client lists and patents. In the case of Gibson, the loan covenants call for an annual updated evaluation of the trade names, a feature that provides the lender with an added level of comfort. For a company that is growing, that trade name value is likely to increase, so the structure may be beneficial for both the borrower and the lender.
Gibson's management team actively works to enhance the value of its brands through savvy marketing. For instance:
Through a 10-year marketing agreement with NBC/Universal, the Universal Amphitheatre was renamed the Gibson Amphitheatre.
Gibson conducts promotions with partners worldwide and sponsors numerous televised events and programs.
Gibson prominently exhibits at industry trade shows and music festivals throughout the world.
Baldwin pianos were prominently featured in the Ray Charles biographical film "Ray."
In downtown Memphis, Tennessee, Gibson's largest retail store includes 120,000 square feet of manufacturing space separated by glass windows to allow shoppers to watch the careful crafting of Gibson instruments.
Long-Term Value
Gibson began working with Bank of America Business Capital in 1986 when the lender financed a leveraged buyout of the company. In the nearly two decades since then, the relationship has endured because Bank of America Business Capital has tailored financing solutions to Gibson's changing business needs. Beyond the creative treatment of trade names, there are other non-traditional features in the deal that are outgrowths of Gibson's longstanding history with Bank of America Business Capital.
For instance, Bank of America Business Capital provides Gibson with advances against inventory and credit-insured receivables in Europe and includes up to $5 million in loans against uninsured foreign accounts. Typically, lenders only advance against foreign accounts with credit insurance, albeit at a lower rate than on domestic accounts.
In today's credit environment, Gibson's balance sheet is considered moderately leveraged and Gibson is well positioned to service its debt. Although industry growth is relatively flat, Gibson has created a cachet around its family of brands and produced an enviable track record of growth and strong cash flow.
Today the company boasts strong sales and management continues to look for ways to expand its business. To finance acquisitions, this recent credit facility also includes a $52.5 million second lien component with $20 million specifically reserved for business purchases. In the meantime, Gibson has ample liquidity to fund working capital needs and continue to produce musical instruments that are played by pros, amateurs and aficionados the world over. It has a solid relationship with its lender, a moderate risk profile and brands that not only command a premium price in the marketplace, but are highly prized by the financial community.
By Ferrell Coppedge, Southeast/Atlantic Division President, Bank of America Business Capital
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| Oct. 7 2005, 6:08 PM ET |
public post by yieldman
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1128722892.13.3445084376699&so=200510
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Topic: BDC Investor
Re: BDCi Discussion Forum to merge with ValueFo... --
I've often thought that the "death knell" for BDCs was on its way. This board is saying faggeddabboudit!
Financially, it's very unjustified but, nevertheless, the way it is. The BDCs themselves, are mainly to blame. Investor PR, especially ALD's, is chaotic, idiotic and clueless. They think flooding your inbox with info that is four clicks away is clever.
Forgive the rant.
I'm leavin' town.
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| Oct. 8 2005, 3:27 PM ET |
public post by tennee9899
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1128799666.48.5451166257651&so=200510
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Topic: ACAS
Re: This following is an ACAS deal, I'm curious... --
JJR,
Thanks for this informative post.
I know a couple of folks at Gibson. I doubt if I can find out what interest rate they are paying ACAS, but I can ask. It will take a while, but I will try.
Baldwin did go bankrupt and Gibson bought them out of bk. Baldwin has a manufacturing plant in Arkansas (my home state) and I have friends that worked there. It was shut down completely. Gibson has brought it back on line, but at a lesser production level than before.
By the way, the team that bought Gibson about 20 years or so ago are well known here in Nashville (Gibson's hq). Henry Juszkiewicz and David Berryman have done a tremendous job of turning the company around and restoring it to profitability. Henry's reputation is one of a solid, tough businessman who knows what he is doing. They are very well thought of here.
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| Oct. 9 2005, 1:09 PM ET |
public post by JJR (16 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1128877760.93.3939604131698&so=200510
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Topic: ACAS
Re: This following is an ACAS deal, I'm cur... --
tennee, good to hear that Gibson's management is highly regarded. Management is always a key ingredient in these financing deals and it's usually the missing piece of the puzzle that's difficult to ascertain from an investor's point of view.
I would suspect a second lien loan that may be at least partially asset backed to garner a lower interest rate than a typical cash flow mezz loan, but I wonder how much lower. If the senior revolver is backed with a good portion of intangibles, there may not be much in the way of tangible asset backing for the second lien loan, so in essence it is a cash flow loan without the upside reward.
Don't knock yourself out asking around for the loan rate, it should be in the next 10Q. I know the competitive market place has forced lenders to lower their hurdle rates, just wondering about the long-term implications.
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| Oct. 25 2005, 09:18 AM ET |
public post by KHospitalle (1  )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1130246328.46.3781726978045&so=200510
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Topic: ACAS
ACAS' entry into the CMBS business --
I was surprised to read yesterday that ACAS was getting into a business that ALD had recently exited. The timing surprised me, as well. The real estate market is considered by many - myself included - to be at the top of its cycle. Any thoughts?
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| Oct. 26 2005, 11:46 AM ET |
public post by tennee9899
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1130341561.24.7350475168993&so=200510
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Topic: ACAS
Re: ACAS' entry into the CMBS business ... --
The move surprised me, also. I feel that commercial real estated is at a top. A developer friend of mine is frustrated that the prices are getting so high, and the cap rates so low, it is tough to make a deal work.
On the other hand, deals are always available, provided you are patient enough and disciplined enough. Another friend is getting very, very wealthy in Class D, commercial space (industrial warehouses). Ugly to anyone driving by, beautiful on his asset/balance sheet. But, he is very patient and has a set of parameters he will not deviate from. Passes up on lots of deals, but the ones he does are usually quite good.
I have faith in Malon, et al, but will watch the development closely. It is good that they hired a very experienced guy to run the deal. We will see how it goes.
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| Oct. 26 2005, 10:24 PM ET |
public post by RWBurnop (3 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1130379851.90.2152784521007&so=200510
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Topic: ACAS
Re: ACAS' entry into the CMBS business ... --
Well, all they have to do is maintain the same discipline they have with the other deals brought to them, of which they only finance 1%.
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| Oct. 31 2005, 08:25 AM ET |
public post by JJR (16 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1130765156.4.22001527372231&so=200510
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Topic: Related Topics
I thought the following was interesting. Community banking and merchant banking are different animals, but I could understand why a local community banker would want to dip his toe in this area. I also understand why the vast majority don't want to get involved, though.
Why F.N.B. Corp. Opted for Merchant Banking
American Banker Monday, October 31, 2005
By John Reosti
The chief executive and president of F.N.B. Corp. of Hermitage, Pa., said it created a merchant-banking subsidiary because he was tired of turning away business.
Too many times, Stephen J. Gurgovits said, the $5.7 billion-asset parent of First National Bank of Pennsylvania has had to refer software companies or small manufacturers to an outside investment bank, because F.N.B. considered their loan requests too risky. Often these companies have deposit or small-loan relationships with F.N.B.
"In some ways, we were admitting to customers that we couldn't handle all of their needs," Mr. Gurgovits said in an interview last week. "The need for this business has existed for some time."
F.N.B. Capital, the subsidiary that was founded Oct. 21, will offer subordinated debt, private equity, and other specialized financing options to small and midsize companies that do not qualify for bank loans.
Instead of making a collateralized loan, merchant banks typically provide operating capital by taking a private equity stake in a company or investing in subordinated debt.
Andrew Borrmann, an analyst with SunTrust Robinson Humphrey in Atlanta, said it is unusual for a community banking company to get involved in merchant banking. Though he agreed that F.N.B. Capital plugs a hole in the company's product line, he said there are valid reasons few community bankers are in the business.
For one thing, Mr. Borrmann said, F.N.B. Capital's deals would be rated a few notches below bank credits; essentially, the deals would be subprime debt. Also, merchant banking would make F.N.B. Corp.'s earnings "lumpy" - a quality analysts and investors dislike - since the business is inherently unpredictable, he said.
Stephen J. Gurgovits Jr., the CEO's son, who had been a vice president and portfolio manager of the wealth manager F.N.B. Investment Advisors, was appointed to run the new unit's day-to-day operations.
F.N.B. Capital will focus on small and midsize companies with annual sales of $100 million or less, Mr. Gurgovits Jr. said; the typical deal's size will range from $1 million to $5 million.
Most merchant banks ignore the needs of smaller companies, because their deals are not as profitable as those for large companies, so F.N.B. Capital would be filling a ready-made niche, he said.
Even so, he said he intended to start slow; the unit will not start making deals until next year. In the meantime, Mr. Gurgovits Jr. and F.N.B. Capital's in-house analyst - the unit's only two employees so far - will spend their time studying prospective customers and analyzing potential deals.
Mr. Borrmann, who has a "buy" rating for F.N.B. Corp.'s stock, said that if the unit hits it big, it can generate huge gains, but if a deal goes bad, the fallout can easily ruin a quarter.
F.N.B. might be better off using the capital it plans to invest in the unit to further its growth in the Pittsburgh market, where it acquired a $536 million-asset bank last year, or in Florida, where it recently announced plans to open a series of commercial and residential-mortgage loan production offices, he said.
"Be more effective doing what you do," Mr. Borrmann said. "F.N.B. could do a lot of banking in Pittsburgh or Florida."
Mr. Gurgovits Sr. said that his company considered the downside before venturing into merchant-banking, but he said those risks were outweighed by the need to stop referring promising customers to third-party vendors.
"It put the banking relationship at risk," he said.
He recounted one example, involving a software company that was being acquired by one of its three original founders.
F.N.B. had handled the company's borrowing needs, but they had been relatively small, he said. The acquiring partner needed a large sum of money, but the only collateral he had to offer was the company's intellectual capital.
Clearly, it was not the type of loan that appeals to a community banker, and Mr. Gurgovits Sr. reluctantly referred the company elsewhere. He declined to say which lender got the deal, though he did note a little ruefully that it reaped about an 800% return on its investment.
Many of the customers F.N.B. Capital will handle will resemble the software company - family-owned or privately held companies trying to finance buyouts or inter-generational transfers, he said. It would also fund companies seeking to make acquisitions, as well as those dealing with extremely rapid growth, he said.
F.N.B. Capital will have its own board. Its chairman will be John W. Rose, who sits on F.N.B. Corp's board and runs the Hermitage private investment bank McAllen Capital Partners Inc.
Mr. Gurgovits Jr. said he would rely on F.N.B. Capital's board for help in analyzing individual transactions and to refer deals. At first, though, the biggest source of business would be the parent company's more than 60 commercial lenders, who will now be able to route the deals they cannot finance to the unit, he said.
It is also expected to boost F.N.B. Corp.'s expansion in Pittsburgh.
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| Oct. 31 2005, 09:22 AM ET |
public post by johnh (2 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1130768539.40.222832497895&so=200510
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Topic: Related Topics
Re: I thought the following was interestin... --
Here in eastern Iowa the commercial banks have formed a club to participate in merchant deals on an ad hoc basis, generally at Libor plus 8-10% with some modest warrant/option participation. They still chicken out on a lot of deals, though, or find intra-group conflicts. We sometimes work with them.
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| Nov. 10 2005, 3:17 PM ET |
public post by tennee9899
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1131653843.25.420136137706&so=200511
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Topic: Related Topics
Re: I thought the following was interestin... --
JJR,
What do you think of the stock of FNB Corp? Seems well run, but I have just started looking at it.
TIA
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| Nov. 11 2005, 1:45 PM ET |
public post by HiStream1
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1131734759.22.6600511483323&so=200511
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Topic: Related Topics
Re: I thought the following was interes... --
FNB is 4x tangible book, and acas is 1.7x book. It is hard to see how adding this type of lending can boost the share price of FNB.
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| Nov. 11 2005, 3:00 PM ET |
public post by tennee9899
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1131739215.92.4847702331913&so=200511
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Topic: Related Topics
Re: I thought the following was interes... --
Yep, upon closer look, I'm more hesitant. I can always wait.
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| Nov. 20 2005, 11:16 PM ET |
public post by RWBurnop (3 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1132546601.78.0921290265958&so=200511
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Topic: OFF TOPIC
Elan --
Still a chance to get on board. Tysabri will be back on the market in less than 4 months, jumping the stock from 10 to 15 or more. It will be back to 30 before the end of 2006. Good news in the Altz program [2 candidates under study] possible even before the end of this year may jack it up sooner. New formulations through the nano-tech delivery system are increasing revenues in that area by 50% a year. Doubled my money so far. Looking to triple it again from here. Have a good day and God bless!
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| Nov. 21 2005, 12:13 PM ET |
public post by KHospitalle (1 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1132593209.29.0270375954776&so=200511
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Topic: OFF TOPIC
Re: Elan ... --
Thanks for the suggestion. I noticed when a poster on the Yahoo! Berkshire board liquidated many of his positions to jump in head first when ELN was below $4. I thought he was nuts at the time, even though his judgment had been otherwise astute for many years.
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| Nov. 30 2005, 11:54 AM ET |
public post by sysop (1 )
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Msg URL: http://www.bdcinvestor.com/forums/show.mpl?keywords=1133369679.34.4026236925302&so=200511
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Topic: BDC Investor
Hi folks,
This will be the final message posted to the BDCinvestor.com discussion forum. As announced previously (http://www.bdcinvestor.com/forums/show.mpl?keywords=1127854621.21.9551564814921&so=200509), today is our merger date for the BDCinvestor.com discussion community with our sister site ValueForum.com, into a new portal into the VF experience called BDCs.ValueForum.com. This means that going forward, the BDCinvestor.com discussion forum is closed to new posts / replies, and will now become a read-only archive. Message URLs will continue to reference archived posts in the same manner, the search functionality will continue to be available, the ignore filter functionality will continue to be available -- the main change relates to being closed to new posts / replies.
All future discussion will be posted into the VF system, and can be found by visiting: http://bdcs.valueforum.com/ (from that page, a link to the BDCinvestor.com discussion forum archive appears below the Group Polls section). We will be pointing the main "bdcinvestor.com" home page to bdcs.valueforum.com shortly (so that when you type bdcinvestor.com into your browser or use an old bookmark, it will bring you to the recent discussions).
Our Gift Certificate offer has now expired, but we are happy to have given out 60 gift certificates to members who registered for them. It is our hope that the combined community of BDC investors will produce even more valuable discussions. The ValueForum community has grown to over 1100 members since its launch in November 2003, and there is a good deal of discussion at BDCs.ValueForum.com, with over 400 posts so far this month under the BDCs topic, and 97 Stock Ratings accumulated thus far in the ratings section on BDCs, with an avg. rating in category of 2.17 on a scale of (Strong Buy) 1.00 - 5.00 (Strong Sell). Rated stocks include ACAS, AINV, ALD, ARCC, GAIN, GLAD, MCGC, PSEC, TICC, and stocks considered to be "hybrids" such as KFN and DFR.
The BDCs.ValueForum.com home page has the same familiar BDC Sector Snapshot on the left-hand side, with latest BDC news below it. To the right, the newest Stock Ratings (if any were made within the last 24 hours), the latest Discussion Forum messages, a short table listing discussion by topic and ratings by topic, then latest ValueForum.com Group Polls, and below that a link to the BDCinvestor.com discussion archive, and a listing of the latest posts to the Coffee Shop (our off-topic community-building discussion area). The Coffee Shop is also used for discussion of the site itself, including our FAQ topic, and system announcements.
For a smaller, faster-loading home page designed for dial-up users, you can visit the My Settings area of VF (click the tab in the VF page header), and specify dial-up mode for your browsing preference. Other options include: the ability to share your recommended items with the group (i.e. this allows you to share the items you found to be most helpful, indicated by a click of the ($) feedback button), the ability to sign up for Email Alerts for Group Calendar events and other items, the ability to create and share portfolios with the group (including the ability to enter a portfolio into the ValueForum Community Portfolio Project), the ability to manage ignore settings (by topic, user, and thread), a setting related to the scrolling VF Message Ticker, and other settings.
Thank you, and hope to see you over at BDCs.ValueForum.com
- The VF/BDCi Team
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