Debt obligations are among oilfield equipment and services companies’ top annual cash outflows. Achieving adjustments to terms, conditions, and rates can significantly impact cash reserves and balances. No one knows that more than the OFS company that recently reduced recurring debt service cash outflows >40% by having vcfo reorganize its balance sheet and refinance its existing line of credit. Read how it happened.
Uncertainty and anxiousness in making payroll increases. It gets tougher and tougher to figure out how or if you can add the people or equipment needed to take on new work. And the worst part? New projects are there for the taking, but the amount of available cash you’d need to fund readiness for them isn’t. In many instances, these cash constraints are exacerbated by less-than-ideal aspects of one’s debt service obligations. So how can you spur competition amongst peer lenders to increase cash capacity, get more flexibility, and optimize agreements? Here’s what that looked like for a recent vcfo client.
An undersized ABL line of credit with a high interest rate left this OFS firm constantly cash constrained. These ABL funds bridged gaps formed by needing to meet payroll every 15 days while clients were paying at 90 days. However, the $2M cap on their line of credit was $3M shy of what they needed to both cover payroll and take on new work. New project opportunities evaporated because of their inability to secure additional workers and equipment needed to support them.
A fractional CFO from vcfo was brought on board to facilitate refinancing, reinforce the firm’s existing ABL facility, and enable the solicitation of competitive bids. Objectives included lowering the ABL facility’s interest rate, improving agreement terms, and increasing borrowing capacity. Among other activities, expertise provided by vcfo’s Consulting CFO to achieve these and other objectives entailed:
- Preparing financial statements in accordance with best practices and lender preferences
- Developing an information booklet to support wider solicitation of competitive bids
- Analyzing, reviewing, and negotiating term sheets and deal parameters
- Providing clear criteria and recommendations for winning bid selection
- Closing and reworking the balance sheet for cash optimization under the new ABL facility
The fractional CFO’s actions and span of lender relationships generated numerous bids and a solid selection of ABL facilities that would meet the company’s needs and alleviate the burdens brought on by its existing ABL facility. Upon selecting a winner and finalizing details of the agreement, the new ABL facility was put in place and provided the company with:
- Significantly lower costs of debt capital
- Ability to take on new capital projects, equipment, and employees
- Resources needed to assess previously unavailable expansion paths
- Greater flexibility to manage market fluctuations and capitalize on opportunities
- Peace of mind across the executive team
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