Fernando Flores (FF) - A successful local real estate investor, looking for angel investing opportunities

 - Proposed to provide working capital credit line (current term of $3.2m @ 8% + additional up to $1.5m) in exchange for 20% equity stake

 - Financing provided will be in form of senior debt with covenants as tough as the bank.

 

 

Averell & Tuttle (AT) - A boutique investment bank and has investment in natural products & retailing sectors - Agreed to provide working capital credit line of $3.7m, but with conditions

 - Interest of 10% + security of accounts receivables and inventories +

 - personal loan guarantee • Personal CEO guarantee was released by MDM after 5 years of relationship - Warrant sweetener • For every $100K above $3.2m borrowed, 2% equity stake must be given with $0.01 strike price (=10% "almost-free" equity stake if the entire credit line is utilized). 

 

FF's offer provides certainty but AT's "stair-step" approach is creative. • It is clear that FF and AT options provide immediate access of credit that the current bank MDM cannot provide . However SNC will have to give up equity stake without receiving new equity capital. .Both FF and AT expect SNC to pay interest and principle like a loan, and standard loan covenants apply

 

Question:

The financing options provide the opportunity to consider the implications of choosing one financing option over another.

 • What are the reasons for your choice of financing options? 

• What are the pros and cons for each of the financing options? 

• What strategies have you been developed in supporting your decision? 

• Are your investment decisions reflecting your strategies and choice of financing options?