Why is the golden rule of financing – especially in structured group financing – so often ignored?
As is well known, the Golden Rule of Financing recommends maturity matching between the source of funds (financing) and the use of funds (investment). Long-term fixed assets (long-lived machinery, etc.) should also be financed on a long-term basis.
👉 Why is this rule disregarded in almost all structured group financings, such as acquisition financings or (secured) financings in the non-investment grade space?
Our clients are typically financed through an acquisition syndicated loan (A/B structure), a unitranche, or via a (Nordic) bond.
In these cases, it is common for the tenor of the working capital facilities, ancillary facilities, and capex lines – as well as additional bilateral facilities – to be shorter than the bullet repayment portion of the main financing.
👉 The further consequence is that these companies – even when acquiring long-term, highly valuable and value-stable fixed assets (machinery, cranes, containers, logistics equipment, etc.) shortly before the maturity of the main financing –
are forced to finance them with a tenor determined by the main financing, which is (3–6 months) shorter!
Far shorter than these assets would typically be financed.
And when refinancing the main facility (syndicated loan/bond, etc.), a new arrangement fee is of course charged on the new total amount.
👉 Dear CFOs, dear Treasurers,
for these far-from-rare situations, we at #LeasingPilot have already implemented an advantageous alternative on multiple occasions:
👉 Finance your investments in long-term assets equally on a long-term basis through the leasing sector – well beyond the maturity of your main financing!
This saves you
🔹 money through lower financing costs,
🔹 additional tax burden where the interest barrier applies (even more favorable financing costs!),
🔹 improves cash flow and KPIs, and
🔹 increases the diversification and resilience of your financing!
Let's talk!
#LBO #Treasury #PrivateEquity #CFO #CorporateFinance
Why is the golden rule of financing – especially in structured group financing – so often ignored?
