In today's unstable economy, it has become the norm for business owners to find doors of traditional lenders slammed shut in their face. One form of borrowing, however, that has been on the rise, is asset-based lending. More and more businesses are borrowing against their assets, such as invoices, stock and property to acquire working capital, as typical bank lending continues to constrict.
This area of finance allows companies to obtain working capital for their business by releasing liquidity tied up in assets. Asset-based lending is growing faster than general lending because it is generally less risky, according to Paul Hancock, a managing director in asset-based lending at JPMorgan, as told to The Financial Times.
'Both the securitization and traditional leveraged loan markets have been significantly less active, and businesses are increasingly considering alternatives for their funding needs,' Hancock says. 'In times of economic uncertainty and earnings volatility, companies can sometimes find it easier to manage their finances with their balance sheet rather than earnings or cash flow covenants.'
While asset-based lending serves as a form of accounts receivable financing that provides working capital through a cash infusion for a variety of businesses, there are vast differences between asset based lending and accounts receivable funding, which also utilizes a company's balance sheet as a source for immediate working capital, according to Jim Beutel, SVP of Sun Capital, Inc. (SCI), a financial firm which specializes in accounts receivable funding for the commercial industries and government contractors.
'Most accounts receivable financing sources are asset- based lenders. They use your accounts receivable as their primary collateral for lending you money, thereby adding debt to your balance sheet. Accounts receivable funding, however, purchases your accounts receivable, so that the cash infusion to your business results from the sale of your receivables and not as a loan,' says Beutel.
By actually purchasing your accounts receivable, Beutel says companies can use their A/R as a source of working capital for their business without encumbering any assets or depending upon economic conditions for favorable interest rates.
'With accounts receivable funding, companies can count on immediate and predictable cash flow without having to worry about tying up other assets or fluctuating interest rates. The cost of funding with SCI's accounts receivable funding program, does not vary with changing interest rates unlike asset- based lending. When borrowing money from an asset- based lending provider, interest rates can fluctuate constantly since they are dependent on the credit market,' Beutel notes. 'And with the credit market being the way it is now, it is certainly not in a company's best interest to rely on asset-based lending as their only form of alternative funding.'
Asset-based lending is directly linked to the value of the assets rather than corporate earnings. Yet, it is increasingly common for creditors and lenders to provide an undervaluation of a company's assets. In a recent interview with ABF Journal, Robert Dangremond, Managing Director with AlixPartners, a global restructuring and financial advisory firm, pointed out 'With leverage at heights never imagined, creditors and lenders are asking, what are the values of the assets, at a time when anything dealing with real estate is being devalued. It's not going to be short- term bubble, how long who knows? When the central banks of the U.S. coordinate a major capital availability to the major banks of the world, you have to ask, who's closer to the real numbers? If they're concerned, the markets should be concerned.'
Accounts Receivable Funding, on the other hand, generates an immediate cash infusion that is easy to quantify according to Beutel. 'SCI's accounts receivable funding program utilizes a company's A/R at its accurate valuation and allows companies the opportunity to obtain debt-free funds without restricted use, whereas, asset-based lenders estimate an average value of your invoices, therefore, limiting the credit they are willing to provide.'
Beutel also notes that asset-based lending is best when used to provide a one-time burst of funding for a specific need. Accounts receivable funding, however, can not only be used as an immediate cash infusion to generate working capital for a business, but also as a tool to increase financial flexibility and can work with other financial tools to achieve a company's short-term and long-term fiscal goals.
Sun Capital HealthCare, Inc. is headquartered at 999 Yamato Road, Third Floor, Boca Raton, FL 33431. For more information on SCH's Medical Accounts Receivables Funding program as a source of working capital for healthcare providers, call Jim Beutel at (800) 880-1709 or via e-mail at jim@suncapital.com.
AIG Stock warrants / dividends - what does it mean?
Got this email - please explain - I own 17 shares.
Dear Shareholder:
We are pleased to announce that on January 19, 2011 each holder of common stock of American International
Group, Inc. (AIG) as of January 13, 2011 was issued a dividend in the form of a pro rata allocation of common stock
warrants. AIG issued a total of 74,997,777.598 warrants, each of which represents the right to purchase one share of
common stock of AIG. AIG retained 67,650.196 of these warrants due to tax withholding. The warrants were issued
as part of the recapitalization of AIG through a series of integrated transactions that occurred on January 14, 2011.
The warrants have been approved for listing on the New York Stock Exchange under the ticker symbol “AIGWS”.
Sales of AIG common stock from January 11, 2011 through January 19, 2011 on the NYSE were made with a
“due bill” attached. Due bills are essentially an assignment from a seller of common stock to a buyer of the right to
receive the dividend. Therefore, with respect to sales of AIG common stock during this period, even though the
seller was the holder as of the record date, the buyer will receive the dividend through settlement of the due bills.
Terms of Warrants. Each holder of AIG common stock as of January 13, 2011, the record date, was issued a
number of warrants equal to the number of shares such holder held on that date multiplied by 0.533933. Each
warrant has an initial exercise price of $45.00 per share, payable in U.S. dollars. The initial exercise price is subject
to anti-dilution adjustment for certain events, including (i) future stock dividends, distributions, subdivisions or
combinations; (ii) the issuance of below market rights, options or warrants entitling the holder to purchase AIG
common stock for a period of sixty days or less; (iii) dividends or other distributions of capital stock (other than AIG
common stock), rights to acquire capital stock, debt or other assets (subject to certain exclusions); (iv) per share
cash dividends in excess of $0.675 in the aggregate in any twelve-month period; and (v) certain above-market issuer
tender offers for more than 30 percent of the then-outstanding AIG common stock. The warrants will be exercisable
through January 19, 2021, which is ten years from the date of issuance (or, if January 19, 2021 is not a business day,
the next business day).
Issuance; Fractional Warrants. The warrants were issued in uncertificated, direct registration form. Because
you were a holder in “street name” of AIG common stock as of the record date, the warrants were credited to the
account of the broker, bank or other intermediary through which you hold your shares. You might not receive
fractional warrants from such broker, bank or other intermediary. In many cases, brokers, banks and other
intermediaries do not distribute fractional securities in connection with in-kind distributions, but rather pay their
clients cash in lieu of posting the fraction of a security. Brokers, banks and other intermediaries set their own
policies regarding fractional securities — AIG did not give instructions for intermediaries to cash out (sell)
fractional warrants. You should contact your broker, bank or other intermediary for information on fractional
warrants and how to sell or exercise your warrants.
Registration of Common Stock. AIG has filed a prospectus supplement with the U.S. Securities and
Exchange Commission (SEC) registering the issuance of AIG common stock upon exercise of the warrants under
its shelf registration statement filed pursuant to the U.S. Securities Act of 1933, as amended. You can obtain a copy
of the prospectus supplement on the website of the SEC at www.sec.gov. The exercise of the warrants is subject to
certain conditions, including that a shelf registration statement relating to the AIG common stock issuable upon
exercise of the warrants is effective, that the shares of AIG common stock issuable upon exercise are qualified for
sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which the
exercising warrant holder resides and that AIG has not exercised its right to suspend warrant exercises for certain
periods.
Warrant Agreement. AIG is issuing the warrants pursuant to a warrant agreement between AIG and Wells
Fargo Bank, N.A., as warrant agent. The warrant agreement contains the complete terms and conditions of the
warrants, and is attached as an exhibit to AIG’s Current Report on Form 8-K, which was filed with the SEC on
January 7, 2011 and is available on the SEC’s website at www.sec.gov. You should carefully read the warrant
agreement to understand the terms and conditions of the warrants.
U.S. Federal Income Tax Treatment. United States Internal Revenue Service Circular 230 Disclosure: To
ensure compliance with requirements imposed by the United States Internal Revenue Service, we inform you that
(i) any U.S. tax advice
Answer
In addition to your 17 shares of AIG stock, you also now own 9 AIG Warrants, which are trading around $15 right now. You can find the quote here: http://finance.yahoo.com/q?s=AIG-WT&ql=0
Those warrants give you the right to buy 1 share of AIG stock at a price of $45 at any time in the next 10 years...regardless of what the stock is trading at in the market. However, you do not ever have to exercise the warrants, if you don't want to. You could also sell them in the open market and take the cash.
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