Actionable Ideas for Companies and Sponsors
“Loan-to-Value” Debt Financing is Available for High Growth Private Companies
There is increased receptivity from the institutional loan market for “loan-to-value” (LTV) issuers. These LTV issuers are typically high growth companies with very low leverage and minimal or negative cash flow who have achieved strong valuations (>$1 billion) in private capital raises, and typically wouldn’t qualify for access to the syndicated debt capital markets using traditional debt-to-EBITDA metrics. However, in today’s market, lenders will invest in a traditional syndicated loan issued by these companies, independent of cash flow, due to the substantial (>75%) implied equity cushion beneath the debt to provide credit support. This provides high-growth companies the opportunity to raise non-dilutive capital to fund M&A and for ongoing general corporate needs. Potential issuers include E-commerce and SaaS businesses with strong recurring revenue, and other leading high-growth disruptors across multiple verticals. The recent uptick in IPO volumes also has helped validate private valuations and added additional credibility to the implied equity cushions that support these LTV opportunities.