Financing Options in a Scarce Market

1
Financing Options in a Scarce Market Fred M.
Whitaker, P.C. Cummins White LLP June 24, 2009
2
Borrowers Perspective

• Increasing Short Term Cash Requirements
• Increasing Supply Costs
• Decreasing Customer Health extending AR
• Contracting Credit Climate
• Increased costs
• Fighting for renewals
• Some credit lines being reduced
• Reduction in potential lenders

3
Increasing Short Term Cash Requirements

• Increasing Supply Prices
• Commodity prices for most of 2008 averaged 100
  higher than 2005. While prices dropped
  significantly in July 2008 and remained low for
  7-8 months they are back on the rise.
• Decreasing Customer Health
• Retail margins declining due to increasing
  prices.
• Customers short paying/extending terms
  unilaterally
• Credit Cards increasingly used b/c of high
  prices, yet the fees on credit cards are taking
  customer margin and increasing your AR
• As much as 130 increase in short term cash
  required for some borrowers to operate at
  existing volume.
• In late 2007 lenders started holding back on
  funding the increase. Lenders are still not
  funding the increase.

4
Scarce Market

• Fees Interest Rates Increasing Loss
  Prevention Key
• Short Term Libor and Fed Funds so low, and banks
  had so many losses they need profits
• BofA and others under direct orders to reduce
  portfolio.
• Fighting for Renewals
• Letters of Credit cash collateral, bad history
• Lines of Credit cash flow story not enough,
  need assets and cash flow have to have both
• Ratios Covenants Changing
• Effective Tangible Net Worth Debt/Net Worth
  changing definitions and increasing ratios
• Current Ratio (watch for bank excluding your own
  line borrowing)
• Cash Flow Coverage Ratios Increasing
• Credit Lines Being Reduced
• Illiquid lenders unilaterally reducing unused
  portions. New credit standards reducing unused
  portions. Eligible/Ineligible Accts.

5
Alternative Finance Readjusting

• Stock Loans Still the Best Play
• 75 LTV 3-5 year terms, interest rates in the
  5 range, no margin calls, non-recourse. Fees in
  the 5 range.
• Hard Money Asset Lenders
• Fees and interest increasing
• Average 12.5 (up from 10)
• 9 points (up from 5-6)
• 50 LTV instead of 65
• All recourse
• Factors
• 2-4 (10k-50k) minimum fees per quarter in
  addition to only advancing 80.
• All recourse

6
Proactive Borrowers are Protected Borrowers

• Renewals v Non-Renewals Difference?
• Letters of Credit collateral, plus AR Cash
  Flow, good business history (Wells Level 11
  Analysis)
• Lines of Credit understanding all your
  potential collateral, asset based businesses
  fairing better Fair Value Election
• Avoiding v Not Avoiding Reduced Credit Lines
• Use your credit line even if temporarily
• Periodic pay-downs and later re-borrowing even if
  not cash flowing is critical
• Growth story critical banks will not fund
  losses
• Using Alternative Lenders Converting Assets
• Proactively monitor your liquidity to keep ratios
  in line.
• Having a Lender v Not Having Lender in a World of
  Less
• Relationships, Relationships, Relationships -
  just like your fuel suppliers limited number
  and they have all the leverage. They have to
  trust your story and judgment. Constant
  communication required.

7
Reactive Borrowers Have to RunStories from the
Siege

• Letter of Credit Non-Renewal
• Bank Seizure, went to Wells for renewal, AR
  insufficient Collateral based on borrowing needs,
  involvement in entity that went BK (solution
  cash collateral, community bank, AR lender for AR
  very expensive)
• Line of Credit Non-Renewal
• Dealer contracts not enough. 3rd Party Dealer
  finance programs required (long term/short term
  issue)
• Asset Base Alone Insufficient Cash flow has to
  support line.
• Mid-Term Current Ratio slipped not watching
  cash usage.
• Line of Credit Reductions
• Unused portion not used in entire 12 mo term.
• Line balance not ever reduced looked risky to
  bank.
• Too much customer concentration and late AR
• Lack of Lender Relationships
• Story 1, v Constant Communication

8
FUNDAMENTALS MORE IMPORTANT THAN EVER

• Letters of Credit break out separate collateral
  now if you need room on your line, be prepared to
  even if you dont. Turn hard assets to cash if
  you are illiquid
• Lines of Credit get rid of balance sheet
  busters, be realistic on your collateral, make
  sure that long term spending is not being funded
  on the line, covet your cash
• Reduced Number of Lenders take Corey to Golf,
  Drinks, Dinner most of all communicate whats
  going on in your business at all times.

9
Up Next

• Getting Properly Banked to
• Capitalize on Opportunities
• Corey Henriksen
• Managing Director
• Acquisition Refinance Capital, Inc.

10
Financing Options in a Scarce Market Fred M.
Whitaker, P.C. Cummins White LLP June 24, 2009