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Video: What are the Benefits of Senior Debt Capital?

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Understanding how senior debt capital can benefit a business.

Pricoa Private Capital’s Josh Shipley, Ed Jolly, Bill Engelking, Brooke Ansel, Ashley Dexter and Tom Molzahn describe how senior debt capital can add value to a company.

Companies often choose to use senior debt capital because of the variety of advantages it offers over other types of capital. Here are 5 key benefits of senior debt capital:

1. Cost – Senior debt capital is a cost-effective way to finance a company. It is the debt in a capital structure that gets paid first, so it is less risky from a lenders point of view, making it the cheapest form of funding for a business. Because of this, senior debt capital is a practical choice for financing operations as well as more strategic initiatives. If a company takes on low cost debt and reinvests it into relatively high return capital projects, they are going to create more value for the business.

2. Growth – Senior debt capital allows a company to invest in its business in excess of cash-on-hand. When a company is growing rapidly, they are typically consuming capital as opposed to generating cash flow, thus, they don't have extra cashflow to invest. However, bringing on a senior debt capital partner can enable companies to pursue growth opportunities that they may not otherwise be able to, such as making an acquisition.

"Senior debt capital can add value to a company mainly in that it allows a company to continue to invest in its business, in excess of the cashflow that's coming off of the business." - Brooke Ansel, Director, Pricoa Private Capital

3. Control – As opposed to taking on equity, senior debt capital allows a business owner to invest in their business, continue to grow and add value to their business, while also maintaining ownership.

4. Flexibility – Senior debt capital has the flexibility to be sourced and placed on standby for the unexpected, whether it's in the form of a revolving credit facility or a shelf facility. It is important for companies to maintain liquidity for the known and for the unknown.

5. Volume – The senior debt market is the largest of all the capital markets. As you work your way down the capital markets into more junior levels of capital, there is simply less capital available. The capital markets are the deepest and most liquid at the senior debt level because that is where most dollars are invested by institutional investors and banks. Thus, companies can access deeper pools of capital from the senior debt market.

If a company is going to substantially increase in scale, they need external capital, and utilising senior debt capital is the most affordable, flexible and effective way for them to improve the growth rate of their company, while maintaining control. Additionally, your senior debt lender should be there for you for the operational side of the business but also as a financial partner to help you grow and support you over the long term.

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.
August 25, 2018

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