By Corey Henriksen
I was at a trade show recently where a lender who had financed several middle market petroleum transactions for me approached and said: “Corey, we need to get a billion out the door; right now it is just sitting dormant at minimal return. We need to get it working. As soon as you can, please bring me some more good petroleum deals.” And this is just one lender in one lender class.
But before you get dollar signs in your eyes and start singing “Happy Days Are Here Again,” focus on the last three words of the preceding paragraph: good petroleum deals. Translation in the cold light of dawn: “A tremendous amount of money sitting on the sidelines looking for a home at great rates and terms for properly structured and well-presented deals. No financing is available for incorrectly structured or poorly presented deals.”
Three Categories of Borrowers – Which Are You?
My perspective is as an attorney and an adviser representing solely petroleum wholesalers and retailers in securing financing. I help petroleum industry borrowers increase working capital and accounts receivable/ inventory lines of credit and obtain acquisition, construction, and refinance funding; as well as work out loans that were either securitized in pools or held in portfolio. In this capacity, I am approached by three general categories of Borrowers:
A. Those borrowers who have their financials in good shape, are well within their current lender’s guidelines and ratios and have a good business plan for future acquisitions and financing. Our focus then is a quality presentation that fully explains their business and goals to a full range of lenders in order to obtain a good match with the right lenders at the best competitive terms.
B. Those Borrowers that have a failing business model. Their financials are not within their current lender’s guidelines and ratios precisely because the business is failing. The issue is not presentation nor is it finding the right lender. Obtaining more funding (if even available) without fixing the underlying issues would only put these borrowers in a worse position: further in debt while their business continues to fail. My response to these borrowers is to have them take a critical look at the business model. We review their current lender’s guidelines and ratios, as compared to other lenders. Their focus then is to obtain operational guidance where necessary, take a chain saw to their business to cut out the dead wood (while they have the opportunity and can still salvage their business) and return to profitability; which will then give them the opportunity for better financing.
C. Those borrowers who have a solid business model, but their financials are not within their current lender’s guidelines and ratios because their current lender does not understand their business. They may even be currently in lender-induced liquidation analysis. Our focus then is a quality presentation that fully explains their business and goals to a full range of lenders in order to obtain a good match with the right lenders at the best competitive terms.
Presentation to the Lender
Our biggest problem in obtaining financing for the petroleum industry is not lack of access to capital, but rather that many lenders do not understand our business. When they do not understand, they will not lend. A solid business model poorly presented rarely produces good results. Here are some important guidelines:
- It is vital that you not give lenders a disorganized stack of papers and expect them to figure it out. Instead, do everything that you can to give each lender a presentation package of your business that stands out as quality as compared to the stack of loan requests already on their desk.
- Research each Lender’s underwriting criteria. Even lenders in a similar lender class will have different parameters for their ratios, etc. Do the sensitivity analyses.
- Tailor a loan request for each lender based on that lender’s specific requirements.
- Work through all the issues before it gets to their desk. Blemishes are not a problem as long as you point them out and explain how you will remedy them.
- Educate each prospective lender about the unique aspects of your business. Show you know your business and where it stands by providing accurate books and records.
- The convenience and gasoline industry, while not recession-proof, is primarily recession-resistant. Historically, interest rates are still low. Methods for obtaining financing have continued to evolve to the borrower’s advantage in the digital age, and many lenders are more comfortable with financing petroleum.
This is a time of great opportunity to assess your business model and make profitable changes, and to expand your business while asset values are low and sellers are motivated. Money is available to our industry now. Will you take advantage of it to enhance your future?
Corey Henriksen is Managing Director of Acquisition and Refinance Capital, Inc., a firm founded for the sole purpose of obtaining numerous capital alternatives for wholesale and retail owners and operators in the petroleum industry. Corey can be reached at (949) 481-8500 or www.AcqRefCap.com.
