I am working on a roofing opportunity where the business is issuing bonds on ~15% of their revenue. These bonds are backed by a personal guarantee from the owner. For context this is a fairly sizeable ($30M - $50M) commercial roofing operation.
I'm hoping to speak with current / former operators, investors, lenders, or legal advisors that understand how this process works under new ownership. Specifically, I am interested in:
1) How does a company's bonding capacity and (who the ultimate backstop for the bonds is) impact lenders' (senior lenders, in particular) willingness to support an acquisition?
2) How feasible is it to issue bonds without a PG under new ownership?
3) How likely is it that the bonding company would reduce bonding capacity under new ownership?
4) How have similar buyers handled this item post-close?
Roofing: Bonding, Debt, and PGs
by a searcher from Clemson University
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sorry
1) How does a company's bonding capacity and (who the ultimate backstop for the bonds is) impact lenders' (senior lenders, in particular) willingness to support an acquisition? Typically the lenders are looking at the future returns for the company, and the ability to repay the loan(s) provided. If a large part of the company’s revenues are from projects that require bonds, ensuring that the bond facility remains in place post-acquisition would be important to the company’s results, and therefor, of interest to the lenders.
2) How feasible is it to issue bonds without a PG under new ownership? We have many Clients without PG to support their bond program. For this to occur, the balance sheet must be sufficient to satisfy the surety’s capital requirements, and sometimes agreements are in place to prevent the distribution of this capital being relied upon. If the balance sheet isn’t sufficient on its own, PG can sometimes be replaced with collateral (letters of credit) or other security to satisfy the surety.
3) How likely is it that the bonding company would reduce bonding capacity under new ownership? This is all driven by the capital position of the post-acquisition company, and the retained expertise. If all company leadership exits with the acquisition, and the remaining leadership doesn’t have the same level of experience, it’s feasible that surety capacity could be reduced. If the capital position is greatly affected with the transition, that could also reduce available capacity. If we had some details on the transaction, we could provide some thoughts here.
4) How have similar buyers handled this item post-close? We’ve seen a variety of approaches—we usually see strategic buyers vary in their approach from private equity or other investors. Depending on the structure we can provide a number of different suggestions, most aimed at ensuring a capital structure post-transaction that will afford the surety capacity needed to continue operations, or additional tools/approaches to do so if the balance sheet needs time to rebuild.