The Leveraged Buyout Revitalized – 2

When the subordinate debt schedule can be eliminated from the underlying value of business operations, transactions are streamlined because incentives are created for all parties.

The strategic Article 9 short sale liquidates business assets into a new purchasing entity, preserving the continuity and full ongoing concern value of a target acquisition. Because the subordinate debt schedule is eliminated, the entire asset base is available to leverage the transaction.

Sellers are incentivized with a path to a successful exit, where one did not previously exist. This is because the purchaser can enter at the attractive cost of liquidated asset valuation and thus strategically allocate value back to the seller in order to reconcile personal guarantees. The first position creditor recovers their appraised value on the collateral quickly, without the need for auction.

For the PEG professional, deals can be assessed without regard to the debt schedule, because the strategic Article 9 reorganization eliminates the need for complex short sales, subordinate creditor consents, or Chapter 11 / 363 sales.

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– The leveraged buyout model Is a model in which an
acquirer or purchaser Uses the target assets of a business To create leverage in
financing the transaction. In the distressed space, this
model is often overlooked Because the target companies
are over-encumbered And facing numerous debt obligations That are tied to the
underlying collateral. By deploying the Article 9
strategic short sale process, Either prior to or
through your acquisition, You’re taking a distressed opportunity And creating a pristine one By stripping off all of the
excess debt and encumbrances From the assets which then
creates an opportunity To use the entire asset base In which to create new leverage And deploy the leverage buyout model. What that might look like
is, looking at a company That is facing 10 million
dollars worth of debt But only has an asset base of
about five million dollars. By using the Article 9
strategic short sale process, You’ll be able to negotiate
a buyout of that collateral At five million dollars, ’cause that’s what its
underlying value is, And you will strip off the
subordinate five million dollars Worth of excess debt. At the end of the noticing
period under the Article 9, You will receive those
assets free and clear Of all liens and encumbrances, And you will have purchased
them at their asset valuation Leaving you the entire asset base To help create the five million
dollars through leverage In which to close that transaction. At Second Wind, we work
with private equity groups

All over the country Who are targeting distressed companies. They are able to bring
those companies to us And through a matter
of six to eight weeks, We are able to reorganize those companies Into new pristine entities Free and clear of their excess debt, And give them back to the
private equity investor Who can then deploy the
leverage buyout model And close the transaction, Minimizing their out of pocket costs And using the leverage
that is available to them Based on the underlying asset base.

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