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10 Things to Consider When Thinking Long Term About Capital

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There are key considerations for companies interested in adding long-term financing to their capital structure, this infographic highlights our top 10.

Finding the long-term financing that best fits your needs.

Companies typically utilise long-term financing once they have demonstrated scale and stability. The infographic below details the ten key considerations for businesses interested in adding long-term financing to their capital structure.

Long-term financing helps drive growth strategy, address internal events, such as shareholder activity, and supports balance sheet risk management. It is more closely aligned with the capital needs of growing businesses. The most important factors to consider when thinking about long-term financing will vary based on the size and credit profile of each issuer, but they are generally as follows:

Image highlighting the 10 things to consider when thinking long term about capital. This is later described in the article.

1. Overall Debt Funding Need

Companies typically elect to have some level of debt at all times for capital structure optimisation and tax purposes. To avoid over capitalising on long-term debt, companies should confirm that level of ‘core’ debt they prefer not to prepay. It’s not that companies may not prepay long-term financing, it is designed not to be prepaid but can be via a ‘make-whole.’ Companies, therefore, would want to make sure they have the right balance of long-term financing in their capital structure.  

2. Relationship with Lender

With long-term financing, it is helpful for companies to have a sense for the desired nature and extent of their relationship with their long-term lender. Typically, they would have a choice of a single or small investor group with a relationship focus, or a more broadly spread capital markets issuance. Depending on whether a company accesses the long-term market through a direct private placement, club private placement, syndicated private placement or public bond, oftentimes there is a meaningful impact on the relationship the company will have with its lender(s).

3. Risk Profile and Leverage Appetite

The risk profile and leverage appetite of a business will determine which long-term financing markets are available to a company, such as an investment grade private placement, a below investment grade private placement, or a leveraged loan/high yield bond.

4. Public Disclosures and Ratings

Public disclosures are an important consideration for companies interested in long-term financing. For example, public bond issuances will require information to be disclosed publicly as well as a public credit rating. Conversely, private debt (particularly direct) maintains privacy.

5. Covenants

Different long-term financing markets have different covenant requirements. For example, private placement financing has financial covenants, whereas public bonds typically do not. Private placement covenants typically mirror those of banks, which many companies would already be familiar with.

6. Currency Type

When thinking about long-term financing, a company will want to determine if they need their provider to have multi-currency capabilities. This would ensure a company can access the various currencies they may need from one lender.

7. Interest Rate Type

When looking at long-term financing, a company will want to determine what they want their mix of fixed- versus floating-rate debt to be. Fixed-rate debt helps to mitigate interest rate risk, should rates rise in the future. Additionally, private placements are priced off of treasuries, so they also add diversification away from any single market risk.

8. Debt Maturity Profile

It is beneficial for a company to match their debt maturity profile to the needs of their business. Long-term financing from the private placement market offers substantial flexibility over maturities and amortisation, whereas the public markets do not.

9. Speed of Execution

It is worth considering the speed of execution a company needs from their long-term financing provider, including how quickly a company needs the funds and whether they understand the time scales of the various types of debt issuances.

10. Diversification of Capital Structure

A company should think about adding types of capital to their balance sheet that serve different purposes, creating a capital structure that is optimised to fit the long-term vision for the business as well as positions the company to take advantage of investment opportunities that could arise months to years down the road.

There are many considerations for issuing long-term financing, Pricoa Private Capital can help guide you through each one, ensuring your financing best supports the long-term success of your business.

This document does not take into account individual circumstances, objectives or needs, nor is it intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services.  
This document does not constitute investment advice and should not be used solely as the basis for any investment decision.This article represents the views, opinions and recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered is unauthorised, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of Pricoa Private Capital is prohibited. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Pricoa Private Capital has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision. Past performance is no guarantee or reliable indicator of future results. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from this report. Pricoa Private Capital and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of Pricoa Private Capital or its affiliates.
The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients or prospects. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. For any securities or financial instruments mentioned herein, the recipient(s) of this report must make its own independent decisions.
September 6, 2019

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