Contract Financing
Recent Examples
Equipment to remain on Service Provider location. Provider has long term contract to provide filtered water to the customer and to dispose waste pursuant to EPA guidelines.
Term - 10 year, monthly payments.
End User/Customer is a state utility.
Equipment shall be housed on utility wind farm. Service provider has contract to service and maintain turbines.
Term - 5 years, monthly payments.
End User/Customer is a bond rated refinery
Plant and Equipment being constructed on Service Provider land with pipes/outflow running to Customer location. Service Provider has long term contract to provide steam generation and carbon waste disposal services for Customer.
Term - 7 years, monthly payments
A supplier of 300 gallon wooden produce bins entered into multiple supply agreements with a number of large tomato processors to supply bins for tomato paste, then store and repair bins during the winter and return them for fill in the spring.
We initially negotiated a “bin fill agreement” that included a sale leaseback of existing bins owned by the processors, this got that asset off the processors balance sheet. A minimum number of fills was agreed to by the parties, the revenue from the minimum was assigned to us. We paid the vendor on multiple schedules totaling over $100 Million. The vendor retired a rich man.
A small public company that manages satellite broadcast networks was awarded a 3 year service contract with a large bank to provide management services for 2000 of the bank branches. The satellite management company needed to supply processors and rooftop antennas in addition to service. They had a 3 year contract to which, by addendum, we added our proprietary language that allowed a minimum payment to be assigned to us. The PV of the minimum payment gave the company funds for the equipment plus working capital.
They tried to raise equity and debt for the contract but failed after many attempts. We help kept them out of bankruptcy and enabled the bank to keep the transaction as a fully off balance sheet service expense.
We have seen a few cases where vendors or service providers are reluctant to approach their customers about minimum payments.
Below is a brief account of what a service provider did to close the deal;
Pencil Sale:
A manufacturer of full service ice machines needed $10 million in capital to build the machines, provide infrastructure and place them in the stores of an investment grade, retail grocery store chain. The proposed contract with the grocer was for five years with the grocer paying a certain amount for each bag when purchased by its customers.
The expense for monetizing this contract was about 11.2%. If the manufacturer used an offer by a private equity group, the full cost of the capital would be estimated at 35% (this includes dilution of ownership and the cost of a loan or mandatory dividends on some stock structure).
Revenue from the contract is expected to be about $650K per month or 823,000 bags of ice at $.79 a bag.
The manufacturer and us negotiate with the grocer (using our proprietary structure) to provide a minimum payment of approximately $216,000 a month or $.263 per bag for a 5-year period.
or
The monthly cost of equity at 35% payment would be $345K monthly or $.42 per bag for the same 5-year period. The difference between monetizing and equity is $.16 per bag for the same five-year period. The manufacturer chooses to use monetization.
The manufacturer offers, through reciprocity, to reduce the cost per bag by $.08 (1/2 of the savings utilizing monetizing over equity) to induce the grocer to agree to the fixed minimum payment. The manufacturer still gets $.08 more per bag, or over $66K per month when compared to the cost of equity.
We fund the contract for $10mm. The manufacturer saves $4 Million over the life of the contract by using monetizing instead of equity; the grocer gets to keep an additional $4 mm in profit over the life of the contract. Everyone wins!
Satellite Data Communication vendor providing services and equipment to a very large national bank. $8,000,000 Monetized.
Vendor/Manufacturer - Provides Digital Signage to End User - National Oil Company with 2500 locations. Monetized $5,000,000.
Security and Surveillance vendor providing service and equipment to large retailer. First 100 stores $1,250,000 Monetized. Will be doing another 700 stores.
Vegetable bin vendor providing service and equipment to very large food processor. $5,200,000 Monetized. The 6th contract Monetized for them.
Organic waste to fertilizer manufacturer to large livestock vendor Monetizing $4,000,000.
Water Treatment Pant manufacturer - customer very large international candy maker Monetizing $12,000,000.
Ice Machine manufacturer - customer national grocery store chain Monetized Contract amount $3,500,000.
Vendor/Manufacturer - Provides wireless services. End User - International Oil Company Monetized $2,800,000
Industries Where Contract Financing is Working:
- Waste Management
- Water Purification
- Green Energy (Power Purchase Agreements)
- Recycling
- Medical
- Retail
- Communications
- Oil and Gas
- Entertainment
- Banking
- Food Processing
- Legal
- Education
- Municipal
- Nearly all industries can be approved!
Business Loans and Unsecured Lines of Credit
Contract Financing - Examples - Return to Homepage
