Vendor Finance and Paying off the bank both at the same time?

by a searcher from London Business School

5 years ago

Anyone (particularly in the UK) have any experience of having to pay vendor financing off during the life of the loan from the bank?  I am currently looking at a deal where the bank insists that I have to pay off their debt before making any repayments to the vendor for his vendor financing.  Yet the vendor is wanting to be paid off before the end of the term for the bank loan.  Thoughts as to how to get around this?

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searcher from Michigan State University

Martin, (1) Find another bank, (2) Use a debt fund (great private credit market in UK), (3) See if bank and seller will do it as an earnout instead, (4) See if seller will take the amount as compensation vs. consideration, (4) Negotiate with bank to allow payments to seller with certain covenants first being satisfied (DSCR, Debt-to-Ebitda), (5) Renegotiate more up front and less in total, so there is no deferral, (6) Further potential deal restructuring options to consider. FWIW, we've interacted with multiple banks and funds in the UK, and never ran into this full standby issue. As long as the seller finance was contractually and structurally fully-subordinated, it wasn't an issue. It may be that your deal is tight, and it is lack of adequate debt coverage preventing it, not a bank policy on full standby. Perhaps you can tell us more about your deal's high level numbers and structuring, and get more specific suggestions.

5 years ago | like reply | 1 like

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