At Atalaya, it’s exciting to be engaged in equipment financing. We think we possess qualities that make us an attractive partner, like access to our own institutional capital base. Perhaps the best way to illustrate Atalaya's advantage is to describe some of our deals and the thinking behind them.
This installment of “Anatomy of a Deal” focuses on a construction company that traditional lenders eschewed but that Atalaya had the flexibility to act upon.
The Background
The lessee in this deal was a construction company founded in 1984 operating mostly in the Southwestern United States. The company, which works on large commercial and public works projects, had withstood two major challenges in recent years. The first was the global financial crisis, which had severely impacted new construction activity. The second was an ill-fated investment in an ancillary line of business related to the energy markets that was completely unrelated to the company’s core construction business and generated substantial losses.
When we met this company, it had already made the decision to scrap its costly adventure into the sideline energy business and to instead refocus its efforts around the core construction business. Even better, by the time we met the company it had started its comeback by re-establishing a pipeline of construction projects, resulting in improved financial prospects.
The company’s bank lender of 20 years, however, was not in a patient mood. Focused on the losses of recent years, it was asking for its loans to be paid down or refinanced in short order.
The Deal
This deal ultimately came to fruition because of a difference in perspective. The company’s traditional lender was focused only on the past, where it saw the losses from both the recession-induced downturn, as well as the self-inflicted wound of the loss-making non-core energy business. We looked, instead, at the prospects going forward. The energy business was not part of that future, and the new business pipeline foretold of improving financial performance. While the company had significant losses over the last three years, its most recent 12-month performance indicated a clear trend towards a turnaround.
Given that we are a direct capital provider without a restrictive bank regulatory overlay, we had the flexibility to act on our view that the company had transformed its financial profile, even when the numbers over the preceding years told a negative story. And, even when the company’s cyclical business and industry — construction — made some other potential financiers reluctant to step in.
This transaction illustrates a couple of key strengths that Atalaya offers its business partners. First, we are willing to accept higher transaction risks when a lease is well-collateralized, and for this deal that included the company’s fleet of construction equipment. Given our depth of experience, we have the capability to evaluate a wide variety of asset types. In this case, we felt very comfortable in our assessment of the company’s equipment, which included several hundred concrete mixture drums, backhoes, cranes, wheel loaders, hydraulic excavators, forklifts and various other types of yellow iron. Second, with our own institutional capital base, we are able to act quickly. The company, which was under time pressure to satisfy its traditional lender, did not have to wait for us to shop the deal to a third party capital provider. Instead, we were able to work with the company’s compressed timeframe.
Ultimately, we executed a sale-leaseback of approximately $4.5 million, collateralized by all of the company’s owned construction equipment.
