A Lower-Priced Deal May Actually Cost More in the Long Run
The Company
The Company is a wholesale petroleum distribution company located outside of Houston, Texas.
The Situation
The Company was banking with a small local bank and one of its main suppliers held a security interest in some of the assets. The current lender was not able to meet the Company’s growth needs so the owner brought in a consultant to help him secure a new working capital line. The consultant gave the deal to Celtic Capital and to another lender. The competing lender, known to be pretty loose on pricing, won the deal; however, we were convinced that this lender would have difficulty with the underwriting so we regularly followed up on the deal’s progress.
During due diligence, the competing lender required a subordination of the supplier and became at odds with the owner over the language of the document. This impasse caused a huge time delay thereby inhibiting the owner’s access to the capital he needed to keep his business on track. To avoid any further delay, the consultant called Celtic Capital back to the table.
The Solution
Having met Celtic Capital President and CEO, Mark Hafner when the deal was originally proposed, the owner asked Mark back in to see how he would handle the subordination. The business owner liked Mark’s ideas. He and Mark then re-negotiated and agreed on terms for a new deal.
The Result
The subordination agreement was negotiated and signed concurrently with the audit. Within thirty days, Celtic Capital took the bank out and provided the Company with a $3MM A/R Line of Credit. According to Mark, “Price really shouldn’t be the deciding factor in selecting a new lender relationship. As was the case here, other issues (e.g. lender flexibility) can cause delays in borrowers’ getting access to the money their businesses need which actually costs them more (lost business) in the long run.”