It has finally happened. Long hours and late night meetings have paid off and you find yourself holding a $500 million dollar contract. As you reach for the champagne it dawns on you: With out a speedy injection of capital you stand to lose an opportunity that could change the entire shape of your company’s future.

If you’re a large multi-national company you have the working capital, resources and infrastructure in place to facilitate such a contract. However, if you are not quite yet rubbing elbows with the Fortune 100 set, you may need additional funds to execute on an instrument of this magnitude.

Banks and even hedge funds have seemingly lost their appetite for anything less than the characteristic “cookie cutter” transactions. Historically, financial structures of this type have always had limited sources of funds. To compound the issue, the sub prime mortgage debacle has steered traditional funding sources in conservative directions limiting their willingness to participate in transactions requiring advanced funding.

Fortunately there are alternative funding sources and products available that allow for the financing of opportunities just like these.

These products have virtually no loan limits, rather, they have strict minimums of no less than $300 million (exceptions to these limits are rare but can be accommodated in some cases).

This product is suitable for new and even start up companies. The focus is on the financial wherewithal of the purchaser of the goods (known as ‘the off-taker’), not the seller (known as ‘the developer’). These products allow the developer to offer institutional financing terms and even deferred payment structures  to the off-taker no matter their age or size as long as the off-taker is rated with either S&P or Moody’s, Triple B or better, with Triple A being preferred. If the off-taker is not rated and they are willing, financials can be used and an attempt to get them rated will be made. Be aware, the lower the rating of the off taker the lower the level of monetisation of the instrument.

The collateral or instruments that may me monetised in this case are: ‘Unconditional’ contracts, bonds, irrevocable letters of credit, CDs, or other assignable instruments with measurable value. The collateral must meet very strict parameters. It must be unconditional (take or pay), investment grade, sum and date certain, assignable and the off-taker of the goods must be US-based. The off-taker can be a foreign entity but it must have a US presence.

Financing for the collateral can be as much as 100% of the determinable value of the instrument, less the cost of funds and is available with institutional rates ranging from 7.5%-9.5% based on the size of the transaction, length of the finance term and the complexity of the deal.

In addition, term structure is flexible; terms may coincide with the contract including the re-payment schedule. For example, if your contract is for a supply of rhodium stretched out over the next 10 years, the repayment schedule could be structured over the entire 10 years if necessary. With this type of structuring the off-taker can actually receive the goods from the developer and realise profits before making payments on the goods. It is absolutely an unheard of option for a start-up or new company to have the ability to offer terms such as the ones these products make available.

However, no terms less than one year will be considered and five or more years are preferred. Fixed or variable rate options are available and this product is completely non-recourse to the developer.

Funding can take place in as little six to eight weeks. Viable transactions are identified almost immediately after the acceptable collateral has been received and a determination of approval can be expected in just a couple of weeks.

Let me use a recent transaction that came across my desk to illustrate. A contract valued at $209 million required monetisation for the purpose of purchasing a coal reserve and the existing mining company and equipment. The contracts were for the production of coal, iron ore, gold, silver and copper, which the client was already mining. However, due to the supply of coal needed to facilitate the contract, a $110 million infusion was required for the acquisition, the re-working of equipment and upgrading the conditions of the mine.

Of course, prior to my involvement, the typical sources for funding were approached and the standard responses were received – the financing was too risky and the maximum level of monetisation for the instrument would be limited to 30%. At their best case scenario my client would incur a $ 50 million shortfall and a six to nine month processing timeline. Neither of which were viable.

In addition to the limited availability of funds the qualifications for these products were extremely difficult. They involved a heavy focus on the developer, three to five years worth of scrutinised financials, references and personal guarantees from any principle of 10% or greater. There were steep up-front, annual, and closing fees; with adjustable rates at prime plus 2%-3%, all the while with no guarantees. 

The off-taker, in this case, was a company based in Asia, however, it had a US presence and had an acceptable rating with S&P and Moody’s.

In the end this financial structure worked perfectly. My client received their capital by funding against a contract for the future sales of goods and in a timeline that matched their requirements.

Although a contract was used as the collateral in this transaction, various other forms of collateral may be used and monetised such as irrevocable letters of credit, bank guarantees, bonds, tax credits and large annuities. The saleable goods can include natural resources, alternative energy (such as Ethanol and Bio-Diesel) and development projects. The purpose of the capital has little bearing on the approval of the financing.

The names and specific details from the example above have been intentionally omitted. In transactions such as these the details can give away the actual projects and the entities involved. It is important that discretion and client confidentiality be at the forefront of the financier’s agenda and must always be protected.

This type of financing offers a nontraditional path to capital. It’s quick, generally taking less than three weeks to determine if a transaction is viable. After which, another three weeks of due diligence and funding occurs. On occasion it takes longer to fund. Most delays are caused during the final stages when attorneys are involved with paperwork. It’s also generous as the monetisation levels can reach as high as 100% of the instrument.

This product can be utilised no matter the size or age of the developer and is non-recourse. It offers opportunity where very little exists and at a speed almost unheard of in the industry and absolutely shuts down the loss of equity and extreme costs associated with venture capitalists. In short, it promotes success.

Bill McHugh is the president of Marker Capital Funding; a California based firm that focuses on the monetisation of financial instruments for international projects with an emphasis of $500MM and greater. Bill has more than a decades worth of experience in the finance industry and is involved with projects on a global basis. Reach him at (619) 275-1285 or billm@markerfund.com