Seems like getting a lender to sign off an even a modest dividend recap for an LMM co with ~$4m - $5m in EBITDA is hard right now.
When do you all think this will bounce back?
I've heard things are starting to get less tight this Q but it doesn't seem like I can recap anything any time soon?
Yeah, this isn't an environment where a lender is going to want to see a Sponsor take money off the table. It can be done, but only for strong credits that aren't cyclical and you'll most likely be paying up for it. Divi Recaps are more or less DOA at my bank right now (we have a Direct Lending fund in addition to the typical pro rata & institutional offerings). The smaller the company, the more likely this is going to be the case.
Thanks for the read. We are in consumer, which I know most lenders consider cyclical.
Do you think even just taking 1 turn out is unreasonable? I'm thinking of doing it in Q1 2024 now. Co will have no secured creditors by then.
Hard to answer this question in a vacuum. Taking out 1 turn of equity … but where does that put the company in terms of it’s new debt burden? How much is 1 turn relative to the amount of equity that you invested? As the above poster mentioned, banks are going to be really hesitant to allow you to take any money out at the moment without extracting a pound of flesh themselves in fees.
If you REALLY want to take money out and the incumbant isn’t cooperative, consider bringing in an entirely new lender that has been working on establishing a relationship with you. No guarantee it will work but it at least gives you some leverage where you don’t have a ton of leverage with the incumbant lender.
Won't have much leverage on it soon beyond basic AP. Nothing really secured, etc.
The equity in Q is kind of irrelevant because we bought this in 2019 for next to nothing, then scaled it to where it is today. It was a few days away from missing payroll when we bought it, super distressed. :)
Really just want to pull cash out so I can tackle some bigger distressed deals.
If you are willing to go to the LMM direct lending funds, you could probably get 1.25-1.5x at S+950. If you are looking for a traditional bank to do a div recap (including those that do CF lending), no go from what I'm seeing. Anything with some semblance of "hair" at banks is still tough.
If you are in a liquidity bind, it might just make sense to pay up for the cost of capital now, negotiate heavily on the prepayment, and maybe you can refi as company grows and/or rates come down.
Thanks, very helpful. Not really in a bind per se, just a little bored.
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