Re: Tenet Financial Corp; investment model
Amer Al Azem
Dear Amer,
Generally speaking, mature companies with three or more years of operations, are more of the caliber capable of closing funding through the Tenet model. We can invest into newer companies; however, they should have Territorial Governments, NGOs and/or Development banks guarantees or credit enhancement, along with EPC bonding and/or surety bonding; in addition to PPA, off-take or usage agreements, and other forms of credit enhancement, over and above Tenet’s investment as the sponsor’s equity to the capital stack. In 5 years of managing several funds, Tenet has never changed its investment model; as demonstrated from the high-level of disclosure on our website.
Sensing the need to avoid any miscommunication, Tenet will always prefer a conference call with the applicant, after submittal of the application, and prior to the conversations with the bank. Direct communication would allow for me to demonstrate the unquestionable benefit of utilizing our capital, versus the damaging dilutionary effects of raising capital through the sale of equity. I will endeavor to thoroughly address our model, step by step, below.
Thus, to go back to the fundamentals, the key considerations (below) for why our underwriting indicates economic value in proceeding:
- The applicant company must appear to be a strong, historical, credit worthy company.
- The enterprise may appear to have need of additional capital for acquisitions or expansion; Mezzanine money.
- The enterprise’s historical banking relationships should be the first to see value in extending you credit for term loans, or revolving lines of credit, in order to expand or further develop your business/enterprise.
- It may often appear that their bank may require for the enterprise to have a little more cash on the balance sheet, as a deposit, in order to backstop the liquidity portion of the sponsor’s equity and leverage your credit as investment grade debt, to meet the bank’s underwriting standards.
- Tenet is positioned to invest that required cash for the sponsor’s equity to the capital stack.
- An Example: Assume a client may need to raise $300 million for their project/enterprise, and that the bank cannot underwrite for them a term loan, or construction loan (mini-perm), based on the enterprise’s current EBITDA and assets; indicating to the sponsor/applicant that there is simply not enough liquidity on the balance sheet to complete the underwriting for their $300 million credit request. Whereby, the lack of liquidity is the primary limiting factor for the bank’s underwriters. This is the ideal applicant for which Tenet’s investment model is designed to offer the applicant/sponsor economic value; when the bank has already successfully calculated coverage from the value in the delta to the company’s balance sheet from its’ scheduled deployment of capital and accretion to equity from reaching new milestones. And, at this point in the underwriting process, the bank has bootstrapped the liquidity shortfall and has informed the applicant of exactly how much cash it will need to have on deposit, at the bank, in order for the bank to complete the credit underwriting and issue the credit.
- In the example above, the bank may indicate that to underwrite the $300 million loan, the company will need an additional $60 million on deposit; the capability to cover any points/fees and/or payment shortfalls (keeping the loan current) during the growth/deployment period; along the duration/timeline set for the company to achieve its’ milestones.
- Tenet would invest the $60 million into the company free and clear, without Tenet encumbering the cash in any way.
- Tenet does not require or receive collateral; allowing the bank to be in first lien position on all collateral, bonds, guarantees, or other forms of credit enhancement, to include first lien position on the cash, that was invested by Tenet, under the bank’s management.
- Tenet will not take equity in the company or board seats or exercise any form of control measures; thus, allowing the company to run its business without any limitations imposed by Tenet.
- Tenet, for its investment, will receive their investment capital returned at the end of 12 months along with its’ ROI ($60 million investment + $40 million ROI = $100 million DPLC or SBLC). The total credit request will be, therefore, for $340 million, rather than $300 million; all funding (100%) from Tenet and the bank. The $340 million loan will be at the prevailing bank term rate; which is always the lowest rate for capital/funding. The bank must also take into consideration, and be comfortable with, the loan amount related to the value of the project once completed (LTV).- Tenet’s return on investment is far less costly than raising cash through equity. As we all know, equity is the most costly form of raising capital.
- When you calculate the delta in the value of the company pre-investment versus post investment, the equity dilution will be much more costly than the cost of the Mezzanine capital from Tenet; especially when considering that the equity sold will be for the life of the enterprise’s operations and earnings.
- It is far less expensive to pay a return on our investment, and then amortize it over time at bank term-rate levels, instead of giving up equity and earnings for life.- The key is to attain as much of your capital as a bank-rate-level term loan, and use as little of Tenet’s capital as possible to mitigate the overall cost of the funding. Specifically, you should only request enough capital to meet the bank’s requirement for liquidity, as cash on deposit under the bank’s management, to meet the bank’s credit underwriting guidelines.
Tenet’s exit strategy, when we call the DPLC/SBLC, will act as a line item draw against the total credit, at the end of one year; after the company reaches 12 months of milestones and moves toward an increase EBITDA and ROE. The accretive net effect on the enterprise equity must demonstrate scale capable of maintaining the bank’s LTV ratio/standards (post our draw on the DPLC). Tenet does not take equity or board seat controls in your company, and does not dilute equity, or lien the collateral, so the bank is in senior/first position on all asset classes.
Tenet is a Fund manager and manages funds for it’s investors under the specific guidelines agreed to when the capital was raised. In accordance with those covenants and provisions, Tenet only accepts a credit commitment (Demand Guarantee) from an acceptable bank in return for our investment.
Kindly remember that the cash we wire in to your bank goes immediately onto your balance sheet “as cash on deposit”, and that the bank can underwrite your credit facility contingent on the cash being on deposit. We will issue an irrevocable bank pay order to commit the funds, prior to the DPLC/SBLC being issued. There were no amendments or changes in Basel III regarding the impact on the banks balance sheet for demand guarantees. Thus, the demand guarantee issued to Tenet’s Fund is not charged against the bank’s balance sheet (senior debt) until it is called; 12 months after the date of our investment into the company.
If you wish to discuss this on the phone or on Skype, I will be happy to schedule another call with your, or with your client(s). I look forward to hearing back from you at your convenience.
Best regards,
Rick Butler
Vice President/COO
phone: (949) 719-2490
Skype: brknbenz
620 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
www.tenetfinancialcorp.com
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How to Submit an Application through our Website
Due to the high volume of inquiries, we have designed our website to both inform you and guide you through our investment process; to include our process page to help you get started, a Methodology page & Calculator, an FAQ page, and an application/intake form to standardize the submission process.
For any project that you have, that you would consider introducing to our fund, we would ask that you follow these steps:
- Spend a few minutes with your client reviewing our guidelines, process, methodology, and FAQ pages of our website: www.tenetfinancialcorp.com
- Once you have determined that the economic relationship between our funds investment criteria and your client/applicant’s funding needs are complimentary, you can proceed to the ‘intake form’ page to complete and submit the application.
- If you should have any questions after completing step (2) above, you can contact me so that I may answer those questions for you.
- On the ‘intake form page’ you will find the application that each client should complete; submitting a separate application for each project. Kindly remind the client to insert your name and email at the bottom of the application, where the application form requires the applicant to fill in “how did you hear about us”.
- We will then review the application and assign it to a member of our underwriting staff.
- Once our underwriter has finalized the first phase of the applicants application (usually within one business week), we will issue a response letter and Expression of Interest (EOI) in order to proceed to the next step.
- Please refer to our process page: http://tenetfinancialcorp.com/process-flow-considerations/ for the steps that will follow.
Please let me know if you have any additional questions. I would very much look forward to working with you and your esteem company.
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Email: amera...@gmail.com
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