Equity Kicker Agreement

19 09 2021

Another common market sweetener is the provision of preferred shares in a development activity to an investor. In this example, an investor needs $1 million to develop a condo building. Due to the risk of the project, the main lenders are only willing to provide 500,000 $US of debt at an interest rate of 10%. The investor can cover 400,000 $US of equity, which allows him to have a spread of 100,000 $US. They are able to find other investors willing to satisfy the balance with a preferential investment of US$100,000 at a rate of 14% in exchange for Warrants to purchase 5% of the property`s equity once completed, at a valuation of $US 1.5 million. The development of the condominium is proceeding as planned and the investor can sell the entire project for 2 million $US. The preferred investor would then exercise his warrants and allow him to cash in the $25,000 difference in additional profit. By accepting kicker equity, you can reduce your interest costs and increase your leverage. Obviously, your best game is working with an experienced trade credit intermediary who knows the benefits of a well-structured EK. These foosballers are used in MOs, stock recapitalizations and LBOs. These types of transactions are considered risky to attract traditional forms of debt. However, subordinated lenders use table footballers to compare them to the increased risk of granting loans to companies with insufficient credit guarantees. Kickers use this converting feature for warrants or shares on a set date and can be triggered by liquidity events.

Yes, mezzanine financing is perhaps a foosball of equity. Alternatively, a borrower can use a CE instead of resorting to mezzanine financing. In both cases, foosball softens the deal by assessing the equity of investors and lenders. Real estate investors often have to be creative to get all the financing they need for their projects. One of the instruments with which they close the gap is an equity foosball that incentivizes lenders to allow riskier financing in the middle of the pile of capital at a lower interest rate. These table footballers can allow those who provide this funding to benefit from much higher returns in exchange for the additional risk they take to fill the funding gap of a project. Mezzanine lenders often package call options with stock option securities. A put option gives the lender the right to sell the warrants to the borrower in the event of a given strike. Note that you can exercise the put until the warrants expire. The company expects to raise US$800,000 to fund the expansion. Internally, it can raise $400,000 out of its profit reservesAssessed profitsThe profit reserve formula represents all cumulative net profits offset by all dividends paid to shareholders. Profit reserves are part of the equity of the balance sheet and represent the part of the commercial profit that is not distributed as a dividend to shareholders, but is reserved for reinvestments.

The company plans to give up 10% equity for every US$100,000 lent by investors. At Assets America┬« we have decades of experience in all types of loans, starting at $10 million. We can help you structure a loan with an equity foosball table that works for all parties involved….


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