The owners of a few skilled nursing facilities and adult day care centers in the New York City Metropolitan Area urgently needed to find a new lender. The Company had revenue of $43 million, but incurred a loss of $1.9 Million in 2014, a loss of $1.4 million in 2015 and a loss of $2.5 million in 2016. The Company had negative net worth of approximately $1 million. The Company violated various covenants with its commercial bank lender and was asked to find a new lender as soon as possible. The lender began reducing the size of the Company’s credit facilities and threatened to use funds on deposit in a sinking account to reduce its credit risk.
The Company contacted many commercial banks but was turned down by all of them. One of these commercial banks referred the Company to Asset Enhancement Solutions, LLC (“AES”) for assistance.
Creative Financing Solution:
One of the biggest challenges facing Asset Enhancement Solutions, LLC (“AES”) was that the vast majority of lenders do not lend to companies that accept Medicare and Medicaid as they are not familiar with these sources of payment and are afraid of the Health Care Industry.
AES worked very closely with the Company’s CEO and CFO to dissect certain historical information so that despite the Company's shortcomings it could be presented in the best manner possible.
The Company had collateral in the form of accounts receivable from Medicare, Medicaid, Private Pay and Insurance Companies but approximately 36% of the accounts receivable were over 90 days.
One of the Company’s entities had a $2 million mortgage with a commercial bank at an LTV (Loan to Value) of only 33% and although this skilled nursing home also had “eligible” accounts receivable of $1,100,000, this lender would not advance funds against the Company’s accounts receivable.
The Company projected a profit of approximately $1.2 million in 2017 but most of the prospective lenders that AES spoke with wanted to see actual year-to date six and nine month financials from the Company before taking a serious look at the transaction. The problem was that the Company did not have time to wait 9 to 12 months to find a new lender, they needed to move immediately. AES reached out to many lenders of different types but was turned down by all except two.
One of these lenders was a factor that specialized in difficult Health Care transactions. AES and the Company ruled this lender out due to the exorbitant effective interest rate their facility would have cost.
AES was successful in identifying a lender that would provide the Company with a $4 million Revolving Line of Credit secured by accounts receivable. The Lender was willing to advance 85% against the accounts receivable at Prime plus a reasonable factor over prime. The lender was also able to refinance the $2 million mortgage for one of the Company’s entities while also providing a separate $1 million Revolving Line of Credit secured by accounts receivable for this entity. This revolver provided additional working capital of $925,000 which proved to be a life-line for the Company.
As the Company’s existing lenders was exerting significant pressure on the Company to move to a new lender, the Company was delighted with this outcome.
Neil Seiden, 516-767-0100
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