Other Fish

Alternative sources of capital can help when traditional funding disappears.

There’s plenty of fine print for both sides to stick to. In the case of a SEDA, the company and Yorkville contractually agree that the financier will never short the stock, will only take the rough equivalent of a day’s worth of liquidity in one tranche and — in most cases — will not hold so much of the stock that it has to be declared a significant investor. For its part, Yorkville makes money from small trades in the stock.

One company to have benefited from a SEDA is Viaggi Del Ventaglio, a €783m Italian tour operator. In September 2006 the company arranged a €70m SEDA with Yorkville to help it refinance as part of a group restructuring. Since then it’s raised about €32m from the facility to finance growth and help it get a better grip on cash-flow management. It’s working so far: for the year ended October 31st, the firm’s Ebitda was €22m, up from €9.5m a year before.

Strzelecki believes the economic downturn is creating new opportunities for clever corporates, but he also knows that many companies are reliant on fresh funding to make the most of them. “Good companies make good plays, therefore they may need cash to do that,” he says. “They may want to launch a new product, go to a new market, or acquire another company, which means they can reduce competition and buy it less expensively in this market than they would have done a couple of years ago.”

But like all other forms of alternative funding, an equity facility is just one piece of the funding puzzle — CFOs shouldn’t sideline their relationship banks just yet. “We’re not an answer to all your prayers,” admits Strzelecki. “You still need debt from banks, you still need equity from investors. We are another source of that portfolio.”

Tim Burke is senior staff writer at CFO Europe.


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