CASE STUDY: Delivering creative solutions to help clients' strategic expansion goals
Here's a look at one private equity firm that needed help with their capital structure and growth initiatives.
Dec. 07, 2022
Companies looking to grow their business often face a common dilemma: they need capital to fund expansion but struggle to find a lending partner who can offer a solution that delivers the financing they require in a structure suited to meet their needs.
At CIBC, we’re passionate about taking an active role in our clients' ambitions to help them thrive. We look for creative financing strategies to fuel expansion or growth efforts while simplifying the banking experience. For example, here's a look at one company that needed help with their capital structure and growth initiatives.
When a private equity firm, and eventually, a CIBC client, purchased a refrigerated trucking company based in Minnesota, management immediately recognized the opportunity to expand into new markets. Before they could accomplish that goal they needed to refinance existing debt and recapitalize the company, freeing up necessary resources to fund an expansion.
The challenge? Most of the trucking company’s collateral was tied up in equipment. The parent company needed a new financial partner that understood their business and had the financial skillset to address their needs with creative strategies and specialized solutions.
To help the firm enter additional markets and extend their services into new territories, CIBC's Minnesota Commercial Banking team partnered with the CIBC US Equipment Finance group to employ a collaborative approach by leveraging their collective strengths. Our Minnesota lending team brings significant middle market business experience from a variety of industries and deep local market insight. Complementing that, the CIBC US Equipment Finance group draws from a highly focused specialty skillset that underpins the unique banking solutions they develop to support equipment acquisition.
Relationship-focused and radically simple
CIBC's Minnesota Commercial Banking Center is located in Minneapolis, not far from the trucking company’s headquarters. But the relationship wasn't just based on proximity — the CIBC team nurtured a relationship with the parent company over several years. While these initial consultations didn’t immediately result in a partnership, our banking team had the opportunity to assess the parent company and connect with management. Leveraging the open communication lines and trust CIBC had established with the company leading up to 2022, this relationship would now serve as the foundation upon which a new banking partnership could thrive. When our client decided to undertake this project, CIBC quickly emerged as the banking partner of choice.
Previously, the client utilized six or seven different financing resources. As their partner, we were able to offer our full product suite, consolidating over 20 separate loans and a distribution into a single bank solution.
"The client had a complicated capital structure," said Brock Peterson, managing director at CIBC. "To eliminate the complexity, we integrated everything into a single-bank solution that streamlined the loan management process. With a comprehensive financing solution contained in one agreement, we saved their finance team valuable time and resources spent managing several agreements. As an institution, we pride ourselves on making banking easy for clients. One of the things we always try to do on the commercial side is look at their existing process and find ways to make things simple for them."
Engineering the right solution
After examining the situation, our CIBC commercial team decided not to go with a traditional revolving credit lending partnership. Instead, the team got creative with the lending structure, not only for the client's current needs, but also for future and ongoing equipment purchases.
CIBC was willing to view the client’s current and fixed assets as sufficient to support both the refinance and distribution, using those assets to fully secure and collateralize the transaction. This approach was a departure from previous lenders, who weren't as comfortable with recapitalizing the company.
Unlike other lenders, CIBC also considered future purchases and incorporated a guidance facility into the solution. While similar to a capital expenditure line, this guidance facility was different in that it involved uncommitted funding from the bank and was cheaper for the company. Guidance facilities serve as a contingency financing option for a potential need but are subject to certain conditions to become active, fully funded facilities. For example, the client would need to maintain a certain performance benchmark and get funding preapproved for the particular use. Along the same lines, the bank has the freedom to decline financing in cases of underperformance or for alternative use of funds.
A defining aspect of our partnership was our ability to deploy our solution entirely in-house. Our Minnesota Commercial Banking team worked hand-in-hand with our Equipment Finance group, which helped uncover creative ways to approach the financing structure for capital expenditure projects. This was also a key differentiator for our financial institution. CIBC stood apart from other lenders who could not offer the focused expertise and sophisticated support a dedicated equipment finance specialty banking team can provide to an organization.
While we were able to offer an adaptable, holistic solution, Matt Green, managing director and group head of CIBC US Equipment Finance, also acknowledges that it was the start that made the rest possible. “The success of this transaction, like most others, is a product of the relationship we built with the company,” he explains. “Thanks to the rapport our Minnesota banking team had with the client, they were able to engage us early. This allowed us to join forces at the beginning and deliver the integrated, one-team approach the client needed. In doing so, we had the right subject matter experts asking the key questions at the right time to create a sustainable financing structure.”
In all, the process took about three months to explore, choose and implement the right financing solutions for the client. This execution speed, however, was a product of the communication and trust that preceded the formal banking relationship. Over time, CIBC demonstrated the capabilities and expertise needed to become the client’s lending partner of choice. By leveraging the combined strength of our Minnesota Commercial Banking team and Equipment Finance specialists, we were able to address the client's recapitalization and refinancing needs to make growth possible, while simplifying their banking.
To see the full breadth of our commercial banking capabilities, and to learn about the ways we can bring simplicity to your banking relationship, visit the CIBC US Commercial Banking page.
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