Clarifications Regarding Contract Finance
Percentage of working capital we can fund is
dependent upon the valuation we
can attach to the
equipment and any value-add the provider of the service or the
service and equipment may
bring to the collateral. In many cases we will
ultimately structure the
transaction as a refinance or a sale-lease-back. Where
we can, we will also
treat the provider as the vendor of the equipment. These
structures may add
significant value that can be utilized as working capital. The
exact amount of working
capital is really determined on a case by case basis.
We can do Sale-Lease-Backs with this program so long
as we are satisfied with
the investment grade quality of
the end user. Sale-lease-backs can be added to
provide the necessary component
of equipment in a Contract Finance scenario.
Another variation of Contract Finance is to have a
provider buy back the
equipment currently on the
investment grade customer’s books; then, enter into
a service agreement with the
investment grade customer. Large companies
normally want use of the asset
and not ownership.
The more the service resembles a commodity the harder it
is to put together as
a Contract Finance transaction.
Commodities such as coal, electricity, oil, gas,
gold, etc. have well defined spot
markets that fluctuate based on a number of
variables. The well organized
commodity markets allow investment grade end
users to procure commodities without
entering into special agreements. Having
said that, it should be noted that
the power of a relationship between the service
provider and end user may be enough
to swing the deal.
We cannot fund a Sub-Contractor’s contract with a general
contractor when the
general contractor has a contractual
relationship with an investment grade end
user. The service provider has to
have a direct contract with the investment
grade end user.
Short-term contracts are more difficult to put together. The
shorter the term of
the contract, the higher the IRR is to the
service provider. The minimum on
term is 12 months.
RANDOLPH CAPITAL LLC
Tel 386-789-9441
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