Lenders' Views on Capex


Do  lenders view all capex intense busineses negatively? What determines perceptions? IS a business with low maintenance capex and high growth capex non-desirable? what if capex is non deferrable.. and needs to be incurred..does it increse the risk that lender wont get paid? I am confused...because in a low growth, fragmented industry – growth capex can be a source of increased EBITDA and elevated multiples, thus ensuring that lenders get paid 


what am i missing? 

 

You've got kind of the idea. Depending on the industry some maintenance capex could be seen as fine. But generally speaking a high growth capex business will stave off lenders given the dent to FCF and the unpredictability with which growth capex can vary to budget financials. Super high level but hope this provides some perspective 

 

Former private lender here. We like current cash flow - whether your cash requirements come from fixed charges in EBITDA or MCapEx is more or less irrelevant - you just structure terms around it (caveat: this partially ignores some competitive nuances and market factors).
 

For a given CapEx number, a larger portion for growth is preferable over maintenance because it can be “turned off,” but we’re already factoring that in. If the business today can already service its debt, then yes growth is nice for an additional cushion, but we don’t participate in that upside and would often rather reduce net debt by keeping that cash on the BS (but obviously we understand that equity benefits from growth and is going to invest it)

 

Capex Example - Data Center Company w/ servers

Servers - 5 yr average life, depreciated over 3 years. But could be aged 7+ years, resulting in an immediate cost to upgrade and modernize

Maintenance capex = relates to spending required to maintain the quality of the Company's infrastructure and includes the replacement of existing servers in its data center facilities. If the existing servers are really "aged" and need to be upgraded ASAP, that's definitely a negative they can't avoid.

Growth capex - -increasing available capacity in existing data center facilities and to support revenue growth

 

That wasn't my question...please could you re-read and adjust your response as appropriate? 

 
Most Helpful

High capex reduces cash flow available to cover debt obligations so naturally, lenders view it as a net negative.

Growth capex is less a negative than maintenance capex insofar as it is theoretically optional. Lenders generally don’t care about the positives of growth—they don’t participate in the upside. 

In reality, the line between growth and maintenance capex is not always clear. In a lot of sectors, if you’re not growing, you’re falling behind so growth capex is not exactly “optional”.

 

Blanditiis atque quo numquam velit commodi id. Ut nihil vero iusto. Commodi ipsum incidunt architecto itaque. Aut assumenda voluptas repudiandae nihil nihil et. Nesciunt dolorem voluptas sapiente. Quam accusamus nihil fugit sunt cum labore.

Autem neque cum hic voluptates nesciunt eum vitae. Harum et explicabo necessitatibus dolores. Reiciendis ut vel dolor voluptatem tempora vel nam. Quia ut vel aut corrupti dolor illum tempora. Exercitationem quibusdam aut assumenda officiis.

Et error doloremque sint ipsum. Sunt ab perspiciatis sed sed provident error ullam. Et quas repellendus cum omnis temporibus quo est. Sed velit animi sequi nemo dolor aut officia. Consectetur aperiam cum accusantium. Recusandae ipsam rem ipsa eos consequuntur.

Iusto veritatis in et distinctio aliquid ab. Officia rerum nam ipsa doloremque. Aliquam aut eum harum dolorum.

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”