Debtor-In-Possession Financing - Continued...

Debtor-In-Possession financing requires special underwriting, valuation and business management practices skills in order to effectuate in a timely manner.  There are a few basic means of creating future value that can be discounted to a present state in order to attract capital investment and it is important to understand all of the opportunities that are out there to make the transaction work.  

Mortgage financing is the most common method people think about and a lot of people put on blinders and think this is the only solution.  In most cases it is the primary solution and can be made to quickly alleviate the cash flow burden, but you should also be considering equity securities, royalty financing and syndicated commercial real property interest financing as part of your arsenal of finance weapons you can bring to bear to remedy the current crisis.

Equity security sales are the least likely alternative, but can be part of the overall mix to make all other forms of financing attractive to the market.  Remember, if nothing else will serve, equity ownership is a sweetener you can add to the other pieces to make the deal work.

Royalty financing is very attractive because it is very tax efficient and payment can be effectuated with a simple lock-box agreement.  If your company has a steady source of future sales that are expected to grow over the coming years, then royalty financing of future receivables is a good idea to consider and can be done in many cases.

Commercial real estate syndications are the least considered alternative, but a realistic plan can make one work if the structure of the transaction, security, yield guarantees and size of the sales pool are sufficient to warrant a regional or national syndication on a self-directed basis.  These are complicated deals and if you don't know what you are doing it will end up being a very expensive failure, so it will probably pay huge dividends to have Rainmaker structure your transaction and help you manage it start to finish.  Commercial real estate syndications have a minimum upfront expense of approximately $250,000 to as much as $500,000, so the minimum deal has to be a property having a total value of $7.5 million or more to make it work, but syndications can be closed very fast and with a high degree of certainty of outcome.  These syndicates don't require an equity dilution, reduce debt and are very cost efficient for the owner/operator of the property.  Definitely something that you need to be thinking about.