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Digg It - Asset Based Lending as a Financing Tool
But as companies confront a tight credit market coupled with lower than expected results, many CFOs are viewing asset based lending as a viable option in the financing tool kit. Even successful companies with strong banking relationships can quickly fall out of favor with lenders and lose access to unsecured financing,
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
especially if they’ve shown recent losses. A few bad quarterly results doesn’t necessarily mean that a company is in bad shape, but stringent bank underwriting parameters can cause existing loans to be called and prevent the firm from qualifying for new financing. A company facing such a scenario can use asset based
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
ending (ABL) arrangements as bridge loans to pay off banks and provide liquidity until bank financing is achievable.
What is asset based lending?
An asset-based loan is secured by a company's accounts receivable, inventory, equipment, and/or real estate, whereby the lender takes a first priority security interest in th
What is asset based lending?
An asset-based loan is secured by a company's accounts receivable, inventory, equipment, and/or real estate, whereby the lender takes a first priority security interest in th
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
se assets financed. Asset-based loans are an alternative to traditional bank lending because they serve borrowers with risk characteristics typically outside a bank's comfort level. These assets typically have an easily determined value. The financing can take the form of loans to revolving credit lines to equipment l
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
ases and can range from $100,000 to $1 billion, depending on needs and circumstances.
How can ABL be a beneficial financing option?
Acquisition
To grow a business, a company may look to acquire a strategic partner or even a competitor. Asset-based financing is often an efficient means to obtain funding for business a
How can ABL be a beneficial financing option?
Acquisition
To grow a business, a company may look to acquire a strategic partner or even a competitor. Asset-based financing is often an efficient means to obtain funding for business a
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
quisitions.
Turnaround Financing
Turnaround financing is often used by under-performing businesses that are not achieving their full potential. In some cases, it is used for businesses that are either insolvent or on their way to becoming insolvent. Asset-based lenders are accustomed to the bankruptcy process and ass
Turnaround Financing
Turnaround financing is often used by under-performing businesses that are not achieving their full potential. In some cases, it is used for businesses that are either insolvent or on their way to becoming insolvent. Asset-based lenders are accustomed to the bankruptcy process and ass
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
t-based financing is ideal for turnarounds because of its flexibility.
Capital Expenditures
Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.
Debtor-in-Possession (D
Capital Expenditures
Capital expenditure is the money spent to acquire and/or upgrade physical assets such as buildings and machinery. Capital expenditure is also commonly referred to as capital spending or capital expense.
Debtor-in-Possession (D
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
P) Financing
Debtor-in-possession (DIP) refers to a company that has filed for protection under Chapter XI of the Federal Bankruptcy Code and has been permitted by the bankruptcy court to continue its operations to effect a formal reorganization. A DIP company can still obtain loans--but only with bankruptcy court appr
Debtor-in-possession (DIP) refers to a company that has filed for protection under Chapter XI of the Federal Bankruptcy Code and has been permitted by the bankruptcy court to continue its operations to effect a formal reorganization. A DIP company can still obtain loans--but only with bankruptcy court appr
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
val. DIP financing, which is new debt obtained by a firm during the Chapter XI bankruptcy process, allows the company to continue to operate during a reorganization process. Asset-based lenders also provide exit financing or confirmation financing to companies coming out of bankruptcy.
Growth
Typically, as a company g
Growth
Typically, as a company g
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
ows so does its need for financing. Also, as a company's collateral grows, its assets can strengthen its ability to borrow. An experienced and creative asset-based lender can assemble a credit facility that can scale to grow with a company.
Recapitalization
Recapitalization is the process of fundamentally revising a
Recapitalization
Recapitalization is the process of fundamentally revising a
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
ompany's capital structure. A company might recapitalize due to bankruptcy or replacing debt securities with equity in order to reduce the company's ongoing interest obligation. A leveraged recapitalization typically achieves just the opposite--by taking on a material amount of debt, the company increases its ongoing i
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
nterest obligation but is able to pay its shareholders a special dividend.
Refinancing/Restructuring
When a company enters or exits a growth stage, refinancing or restructured financing may be key to creating a capital structure that better meets the needs of the company. This type of financing is often used for marke
Refinancing/Restructuring
When a company enters or exits a growth stage, refinancing or restructured financing may be key to creating a capital structure that better meets the needs of the company. This type of financing is often used for marke
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
expansion, completing an acquisition, restructuring operations, or following a successful corporate turnaround.
Buyout
A buyout is the purchase of a controlling percentage of a company's stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. The ta
Buyout
A buyout is the purchase of a controlling percentage of a company's stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company. The ta
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
get company's assets are used as collateral for debt, and its cash flow is used to retire debt accrued by the buyer to acquire the company. A management buyout (MBO) is an LBO led by the existing management of a company.
What are the advantages to ABL?
· Tends to feature fewer covenants than other types of fina
What are the advantages to ABL?
· Tends to feature fewer covenants than other types of fina
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
cing and those it does include tend to be more flexible. Cash flow loans, by contrast, often have four or five covenants including total leverage, fixed charge coverage, and minimum net worth.
· If a company is growing, the receivables and inventory it uses to secure the asset based loan is likely growing as wel
· If a company is growing, the receivables and inventory it uses to secure the asset based loan is likely growing as wel
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
. Thus, the company has a greater collateral base and can borrow funds to fuel its growth.
· ABL instills discipline. Since the loans are based upon accounts receivable and inventory, the company is motivated to improve collections and complete the production cycle in a timely manner.
· As mentioned earli
· ABL instills discipline. Since the loans are based upon accounts receivable and inventory, the company is motivated to improve collections and complete the production cycle in a timely manner.
· As mentioned earli
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
r, ABL imposes less stringent covenants compared to cash flow loans. These type of loans also provide better security to the lenders, which in turn allows them to grant more time to the borrowers to turn their company around in difficult times.
What are the disadvantages of ABL?
· Since the level of funding is
What are the disadvantages of ABL?
· Since the level of funding is
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ontingent upon the asset values on the balance sheet, there may not be sufficient liquidity. Only asset rich companies would likely benefit, while many service companies would not.
· Such a requirement can be difficult for the company.
· Asset based lending tends to be more expensive than other types of
· Such a requirement can be difficult for the company.
· Asset based lending tends to be more expensive than other types of
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
financing, often three to five percentage points above traditional bank financing.
· ABL runs counter to the thinking of a lot of CFOs who believe it is dangerous to tie short term assets to long term financing.
Although ABL is now a common financing tool, it is not for everyone. It makes sense to explore all t
· ABL runs counter to the thinking of a lot of CFOs who believe it is dangerous to tie short term assets to long term financing.
Although ABL is now a common financing tool, it is not for everyone. It makes sense to explore all t
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
pes of financing before deciding if asset based lending is the right choice. The CFO must review the state of the company’s credit, analyze the firm’s asset structure, and its current debt load. Asset based lending can provide the liquidity needed for the company to grow until less expensive bank financing is available
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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