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Unusual Financing: Looking for Ideas and Suggestions

Sorry for the long background, but it's important for the discussion. I'm consulting to a small US based, 15 person technical services company (The Company). It is in the advanced materials space. They have a unique technology, that a "Global 2000" firm (the US subsidiary of the Global 2000) has decided to develop 3 plants around. Each plant costs $200-300M. The plants are to be in the US, EU and Asia. The "Global 2000" firm does not want to build or own the plants, but has guaranteed (by contract) to buy all output of the plants for 15 years. The Company is working with local partners (ABC, XYZ, PQR) in each region to build the plants. The plants take 3 years to build. Each local partner will provide the project financing upto ~70-80% of the cost, leaving 30% equity financing. The Company has an option to participate in the equity financing on 20% (80:20 basis of the equity) for each plant. The equity options for The Company range $8M to $20M, for each of the three plants. The Company is looking to finance the equity options it has for each plant. This isn't a factoring type financing, nor is it traditional debt or equity (although it could be). It's also complicated by the international aspects. The cashflow from the "Global 2000's " purchase commitment is sufficient to generate cashflow to service the plant operations, cover the project financing and provide cashflow to the equity holders. I need to do more analysis on this. Any thoughts on financing options? What am I missing in thinking through this? What legal advice should we think about? Thanks...

Answers

Topic Expert
Joseph Ori
Title: CEO
Company: Paramount Capital Corporation
(CEO, Paramount Capital Corporation) |

This is an intl project finance deal and if it makes sense, the co should be able to raise debt and equity capital at the corp level to make the equity investments. Co needs to hire an investment bank to structure and raise the capital. It should be a combination of long term debt and stock.

Atul Madahar
Title: Director
Company: Anonymous
(Director, Anonymous) |

Thanks Joseph, I think a boutique but recognized I-bank would be the best approach. This is probably too small/niche for a GS or JPM caliber bank... Do you agree? Do you have any suggestions on I-banks?

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

I have heard of these types of transactions and the driver will be the ability of the founders to raise capital throughout the project, not just initially. So the most critical component above the concept itself is whether the founders have ever raised equity before. This almost sounds like it's in the clean tech industry which is currently taking a beating.

The debt piece won't happen until there is an asset, like a built facility. Debt is not set up to be prospective. Somewhere there has to be liquidity to offer an escape hatch to the lender. I wonder reading this whether when it's all said and done if the founders will end up with anything, which is an important consideration made by potential investors.

Atul Madahar
Title: Director
Company: Anonymous
(Director, Anonymous) |

Hi Gary,

Thank you for your response. You've echoed my internal thoughts and concerns about the debt and and equity exit/liquidity issues. Given the projects are staggered, it may be conceivable to build a greater equity stake in the later projects based on the CFs/proceeds from the first projects. Thanks once again.

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