Background

A market-leading accident management firm that served the insurance market had been acquired by a private equity house using a mix of loan notes and mezzanine debt. This led to a significant capital cost and a lack of flexibility around the debt structure. With growing revenues and earnings, and an increasing working capital requirement, the debt structure in place was increasingly redundant.

Action

The nature of the company’s business created a receivable asset with a number of unusual aspects, not least the fact that the debt created is actually a claim, not a true receivable at the point of claim. FRP Debt Advisory spent considerable time working with the company to understand the nature of the receivable, so that it could be simply explained to an audience of asset-based lender (ABLs). We ran a competitive auction of the opportunity with a number of lenders, and secured a range of terms that provided the ability to repay the mezzanine lender in full while also offering increased, scalable working capital facilities.

Outcome

The high-yielding mezzanine funding was repaid, resulting in a much lower cost of capital. The new ABL facility was based on significantly more favourable covenant terms, including the permission to allow payment of loan note interest in cash and the potential repayment of loan notes. The additional working capital requirement was successfully funded to provide much greater ongoing flexibility in the company’s capital structure.