Recently Funded | $3 Million – Commercial Bridge Loan – Industrial Packaging, CT
$3MM COMMERCIAL REAL ESTATE BRIDGE LOAN FOR OWNER-USER INDUSTRIAL PACKAGING COMPANY
Loan buys time to restructure using tactical, short term real estate bridge loan arranged through Speritas Capital Partners.
This 30 year old New England packaging company had recently gone through some hard times, unrelated to the pandemic, and cash flow was very tight.
As a result of weak performance, the company had breached a financial covenant in their loan agreement and their bank was eager for the company to repay the loan or somehow get the loan off its books.
The company brought in a certified restructuring professional to help put the company on a path of profitability.
In situations like this, a restructuring professional will often assist with lowering operating expenses, renegotiating vendor debts, improving topline revenue and assisting with other balance restructuring needs. It is a critical first step.
The Loan Need
Given the company’s cash flow situations, the company was unable to repay their existing bank loan in full so a discounted payoff had to be arranged and agreed upon by the company’s current bank.
The company also needed to identify a new lender who could understand the business model and the turnaround strategy and who would not focus solely on past performance.
Identifying the Right Lender
This is where Speritas Capital came into the story, with the jobs of 60 employees at stake during a pandemic.
Speritas Capital was asked to identify a new lender who could analyze both the value of the owner-occupied commercial real estate and the ability of this operating company to service the new bridge loan going forward.
Finding the right lender was challenging because many commercial real estate lenders are only able to underwrite loans involving investment real estate such as office property, multifamily or mixed use buildings, NOT owner-occupied industrial properties.
When reviewing non-owner occupied real estate, the credit analysis relies on the predictability of rental payments and building operating expenses. These are relatively easy to review & analyze.
In owner-occupied situations, the credit analysis must rely on the predictability of the borrower’s customers, the borrower’s operating and capital expenses. These factors are much harder to analyze.
Bridge Loan Strategies with Non-Bank Lenders
The $3MM bridge loan for our industrial borrower was a strategic, short term tactical decision to provide the company time for the restructuring to yield an improvement in EBITDA.
The use of a short-term, 12-month bridge loan was part of the broader restructuring effort already underway, which involved expense reductions, a shorter cash conversion cycle and a balance sheet restructuring.
Once performance stabilizes, the company can refinance the bridge loan with a longer term, lower cost loan.
Finding the right lender: In this case, the new lender had to be an alternative (nonbank) lender because a bank will not agree to pay off another bank at a discount. (Hard to explain that to bank regulators!) So this had to be a nonbank bridge loan.
Strategic Use of BRIDGE LOANS
Let’s take a minute to talk about bridge loans – as they are often underutilized as a strategic solution in times of financial stress.
Bridge loans are designed for transitional funding needs such as a business restructuring or property stabilization. The interest rates on bridge loans are generally higher than traditional, long-term real estate financing.
Bridge lenders take more risk since the borrower tends to have limited cash flow. Thus, the higher cost. For a bridge loan, the lender is mainly concerned with the market value of the property, but they also need to understand the company’s ability to repay.
Bridge loans are typically for 1-3 year maturities where the borrower only makes interest payments until maturity, with limited penalties for prepaying earlier.
The vast majority of bridge lenders are private, nonbank lenders. The higher risk usually involved in a bridge loan makes them unsuitable for most traditional lenders.
The Role of Speritas Capital Partners
Our role in this debt financing was to look beyond traditional funding sources to identify financing options and lenders who could enthusiastically support the turnaround and position the company for long-term growth and success.
Digging deep into our lender relationships, Speritas Capital was able to bring in a nonbank bridge lender – a unicorn for the situation – who not only understood the market, the geographic area, and turnaround situations, but also had experience in discounted bank payouts.
Identifying and matching the right lender to challenging situations is what Speritas Capital Partners does best.
About this Commercial Real Estate Bridge Loan
There were three parts to this transaction:
- Refinancing of the accounts receivable and inventory line of credit
- Cash out refinancing secured by an owner-occupied, light industrial property
- Repayment of a commercial mortgage at a discount
COMM REAL ESTATE BRIDGE LOAN
LENDER: ALTERNATIVE NONBANK
CLOSED IN: 60 DAYS
Conclusion – Post Finance Update
The bridge is working as planned. The company’s performance is improving and Speritas Capital has begun the process of refinancing the bridge loan with a 30-year permanent financing. 60 CT jobs saved!
The Speritas Capital team is always happy to hear your story, learn more about your financing needs and answer your questions. And we never take an up front fee. Contact Speritas Capital Partners today!
Jeff Bardos, CEO – MEET JEFF!
The Speritas team brings our 30+ years of banking experience and our transparent, strategic approach to every client and every deal, both large and small.