Anticipating financial decisions, key facing 2021

The extension of the grace period in ICO credits that the government is preparing will not be enough. Companies must plan and make decisions now to overcome the difficult 2021.

As of March 2021, the financing lines guaranteed by the ICO should begin to be paid back by the companies. However, for many of them, the one year grace period that these credits have seems too short in view of the evolution of the pandemic and its undoubted impact on the economy. Even with an eventual improvement in the health situation and the economy in the next half year, the reality is that the volume of debt that companies have generally incurred is too high to be able to repay these loans without liquidity tensions.

Faced with this outlook, and pressure from companies and financial institutions, the Spanish Government is taking measures and in all likelihood is going to extend the grace period, to one more year until 2022, and extend the term of the loans from five to eight years. Banks and businesses will welcome these new conditions. On the part of the financial institutions, they have assumed a risk of 25,000 million Euros which, if the number of defaults increases, could lead to significant provisions and even cause some banks to fall into losses. On the part of the companies, the situation is serious in many of them, and even a recent report by Alvarez & Marsal indicates that 14% of the companies will probably disappear due to the effects of the economic crisis and the inability to repay the debt incurred.

In spite of this relief in the repayment terms of the ICO credits, it seems clear that the companies cannot rely only on this measure, which also still needs the approval of Brussels, so it may suffer changes in the negotiation with the European authorities, among them the European Central Bank, which must approve this measure, and in such approval could set the mandatory provisions in case of increased grace periods and repayment terms, which in practice would mean that it could not be applied by the banks due to the increased cost it would entail.

European Central Bank headquarters in Frankfurt

In short, there is an urgent need to anticipate an economically very complicated and financially very tense scenario. It is crucial at this time to protect the cash flow and look for new financial instruments that can either cancel the existing debt that generates a higher monthly service for another much longer term that substantially reduces this service, or capitalize the companies to strengthen their solvency, resist the decrease in income and profits and bet on the digitalization and the implementation of new business lines.

At Altria Corpo we are actively managing our clients to find the best solution to overcome this coming year. Despite the difficulties of the credit market and especially the caution of many financial institutions, there is still a variety of possibilities, both in the area of restructuring bank debt, with the help of debt funds and other similar alternative financing instruments, and in that of other financial solutions that operate with the guarantee of the company’s assets, both real estate and productive equipment, or even the stock itself. Without forgetting the possibilities that the entry of equity offers, be it venture capital funds, or industrial partners or those with a more permanent vocation.

These are moments where, in order to achieve a solution that gives economic and financial viability to the company, a high knowledge of all the possibilities that exist in the financing market is required, as well as the capacity to prepare a complete dossier where the current financial statements are clearly explained and above all, an economic and treasury projection of the company for the next months and years can be made. The help of an expert advisor is, without a doubt, more necessary than ever at this time.

Altria Corpo is a financial consultancy founded in 2014 by Albert Gumà and based in Barcelona. Its clients are medium and large companies, to whom it offers its experience in all types of debt and equity financing, and access to more than 150 financial providers including banks, alternative financing, debt funds, public funds and other instruments. In its 7 years of existence, Altria Corpo has positioned itself as a reference in the search for financing for medium and large companies, with an accumulated advised transactions worth of more than 250 million and more than 600 operations. The scope of the companies advised covers the entire Spanish territory, with a concentration in Catalonia, which represents 80% of the total amount advised.

Interviews to Altria clients: Torremirona Golf & Spa Resort

“It’s key to have partners like Altria who can help to shield the financial needs in such an uncertain environment”

Our country is a world tourist power. The tourism sector is in fact the one that provides most employment and contributes most to the Spanish economy with almost 15% of the GDP. It is not surprising, therefore, that in the numerous portfolio of clients that Altria Corpo advises are some relevant companies in this sector.

One of these companies is Torremirona Golf & Spa Resort. We wanted to talk to its General Manager, Yassine Bouallalla, so that he could tell us about his experience with Altria Corpo.

Altria Corpo: Yassine, tell us a little about Torremirona and what your career has been up to now.

Yassine Bouallalla: The Torremirona Golf & Spa Resort complex began its activity in 1989, with the inauguration of the golf course, and later consolidated in 1998 with the opening of the hotel establishment to generate a complete product. The objective has always been to offer a multi-service establishment, with the capacity to adapt to all the needs of both guests and visitors, being a reference point in the territory in terms of the service and quality offered, the deseasonalisation and the link with the territory.

A.C.: It is always said that the secret of the hotel product is the location. You are in Navata, near Figueres, in the province of Girona. What possibilities does this give you?

Y.B.: The complex has a strategic location that allows its users to enjoy the whole province of Girona, while facilitating communication with their respective locations due to the proximity of the AVE and motorway services. However, location is not everything, and we complement the fact that it is not a coastal product with many different products and services.

A.C.: You’ve had significant growth in recent years. What have you based it on?

Y.B.: As of 2014, the establishment began a process of transformation and dynamization, further strengthening its versatility and focusing on being a product of leisure, culture, sports and gastronomy, with the construction of a new SPA, the adaptation of the sports facilities and the renovation of the rooms and their common spaces.

A.C.: The relationship with Altria Corpo started some time ago. What was the reason for contacting us?

Y.B.: We had positive references from Altria Corpo, and due precisely to this process of transformation mentioned above, there were financial challenges to accelerate the change and adaptation of the product to the new reality of demand arising from the previous economic crisis and above all the process of social digitalization and its consequences. Altria is a benchmark when it comes to optimizing the time spent by a company in obtaining and negotiating the necessary resources. The first contact was close, relaxed and direct, making clear the knowledge of the financial sector and its areas of action. Since then, the relationship is fluid, two-way and with many synergies between the two parties.

A.C.: What do you think have been the main benefits of having worked with Altria?

Y.B.: Above all, the assertiveness and ease of management they give to the companies they work with, their network of relationships and their ability to be effective in finding the product that best fits each need or type of business. During the procedure, needs are analyzed, projections are contrasted and scenarios are worked on together until a consensus is reached. Afterwards, the management and follow-up are pleasantly efficient, and the way of adapting, impeccable. I believe that in the end the main benefit is to have gained a “partner”.

A.C.: In the last few months Altria Corpo has obtained a relevant amount of financing for the Torremirona complex, with different lines and instruments. What will you use the financing obtained for?

Y.B.: The financing will be used mainly to continue investments in order to meet the objectives of positioning and quality of the establishment, and to strengthen the position of the product in the territory, as well as to ensure the proper functioning and liquidity in an uncertain time where forecasts are constantly being changed. This is a period of transition, in which the key to financing is to guarantee the continuity of the business by facilitating its economic survival from securing its finance first.

A.C.: As you say, these are very uncertain times in all areas. As far as the financing market is concerned, how do you see it right now?

Y.B.: It is difficult to predict the behaviour of the economic fabric in the medium term, but the degradation of a large part of the service industries, especially those related to transport and tourism, as well as the evident recession that is being experienced in the whole of the territory, makes it difficult for companies to have positive cash flows in the medium term. Precisely for this reason, it is necessary to have precise forecasts, to act responsibly and to have strategic partners who can help to shield the financial needs that guarantee the future of the business fabric.

A.C.: Well, Altria Corpo will continue to be your partner in helping you in this complex environment. Thank you very much, Yassine, for your answers.

Corporate Finance Pills (1): What is an equity kicker?

An Equity Kicker is a capital incentive in which the lender provides credit at a lower interest rate and, in return, obtains an equity position in the borrower’s company. An equity kicker is structured as a conditional reward, in which the lender obtains ownership of the capital to be paid back at a future date when the company achieves specific performance targets.

Early stage companies use an equity kicker to access financing for their operations. They often find it difficult to attract investors, as they are relatively new and less likely to gain their confidence.

Equity kickers are typically used in LBOs, MBOs, equity recapitalisations or venture debt operations. Such transactions are considered too risky to attract traditional forms of debt. Therefore, mezzanine and subordinated financiers use equity kickers to compensate for the higher risk they take in lending to companies that do not have sufficient collateral for loans. Kickers use convertibility into shares or warrants at a future date and can be triggered by a sale or other liquidity events.

How does an equity kicker work?

Companies use an equity kicker to entice lenders to buy a bond or preferred stock of the company at a reduced interest rate. The lender can obtain an equity kicker from a minimum of 10% to a maximum of 80%, depending on the risk of the investment.

When a borrower attaches an equity incentive to the terms of the debt advanced by the financiers, this incentive is called a kicker. While on the one hand the lenders lend at a relatively low interest rate in relation to the risk of the transaction, on the other hand they obtain a share in the capital stock that can be exercised at a future date when a liquidity event occurs.

Uses of the equity kicker

Companies that offer an equity investment option cannot access credit from traditional funders. These funders usually provide loans to companies with adequate cash flow to service the loan, as well as a sufficient asset base to act as collateral for the loan.

Most of the companies that issue equity kickers are start-ups and early stage companies that have not yet accumulated enough assets. They offer a kicker as a way to attract investors who would otherwise not be interested in lending to the company.

Example 1: Equity Kicker

Let’s take the example of XYZ, a company that makes wine glasses. The company is in the process of expanding its manufacturing plant to increase annual production. XYZ has been operating for three years but is still unable to obtain bank or conservative financing due to its high perceived risk.

The company plans to raise 800,000 euros to finance this expansion. It can obtain 400,000 euros internally with the resources generated by the activity itself. On the other hand, the company plans to waive 10% of capital for every 100,000 euros borrowed from investors.

Three investors – A, B and C – join forces to finance XYZ’s expansion. Investor A is willing to provide 200,000 euros, while B and C are ready to contribute 100,000 euros each. This means that lender A gets an initial kicker of 20%, while B and C get 10% each. However, investors can only exercise the right to obtain shares at the time of sale of the company.

Example 2: Warrants

Suppose that the debt is structured as a guarantee, where lenders are given the option to buy a certain amount of shares at a certain price at a future date. For example, the borrower may give 10% guarantee coverage on the amount provided by each lender to the company.

Using the figures in Example 1, we can deduce that investor A will get EUR 20,000 in warrants, while B and C will each get EUR 10,000 in warrants for the company’s shares. The price of the shares will depend on the most recent round of capital.

The options of equity kicker lenders

Lenders provide financing to a company to help it meet certain performance targets and increase the value of the company above its current market value. In return, lenders obtain an equity stake that can only be paid out if a certain milestone or liquidity event occurs. If neither of these events occurs, the lenders will continue to maintain their equity position.

As shareholders, they benefit from regular dividend payments when the company’s financial results are published, as well as from a percentage of profits that is proportional to their percentage of equity. In the event that the company reaches a certain agreed-upon profit potential or when the owners decide to sell the company, the lenders are paid first when these events occur.

The equity kicker in the real estate sector

Equity kickers are also used in the real estate business. A lender may provide a real estate loan at a reduced interest rate in exchange for a share of the total income from the property. The kicker may be provided when the borrower lacks sufficient collateral to secure the loan, but is expected to be able to repay the loan with a potential for future earnings if he obtains funds to finance his operations or expansion.

The equity kicker can be structured so that the lender receives a percentage of the gross rental income generated by the property if it exceeds a certain agreed-upon amount. It may also depend on a future event, such as the sale of the property, where the lender will receive a percentage of the sale proceeds depending on the amount of its interest in the business.

For example, suppose a borrower borrowed 1 million euros to buy a luxury home. The borrower uses the loan to complete the purchase and renovate the home for lease. Immediately after the renovations, the value of the house doubles to 2 million euros, due to the growing demand for this type of property. If the borrower initially provided 10% equity to sweeten the deal, it means that the lender will get a 10% share of the value earned by the property once it is sold.

Altria achieved 56 million euros in financing for its clients in 2019

The financial consulting firm for companies continues its upward trajectory and is positioned as the reference in obtaining bank and alternative financing for the segment of medium and large companies

The financial consultancy firm Altria Corpo, which specialises in medium and large companies, obtained 56 million euros in financing for its clients in 2019, an increase of 10% over the previous year and a new record for the firm. The loyalty of the companies that repeatedly trust Altria as their partner in obtaining financing, as well as the increase in the client base thanks to the expansion of its number of managers and consultants, have made these results possible.

Among the relevant operations that Altria has advised on are a significant number of long-term loans, for amounts between 1 and 3 million euros, to undertake new investments in companies from the most varied sectors. The financial providers that have granted this type of operation are banks, public entities and direct lending funds. As Ramiro Lama, Altria’s partner and head of financing, points out, “in this type of operation, with a high amount and where it is more difficult for companies to obtain financing, is where Altria can give greater added value to the relationship with its customers. Altria’s knowledge of the financial needs of its clients and its ability to structure these needs among the diversity of alternatives that are emerging in the Spanish and international markets, are the reason why medium-sized companies find in Altria the right partner to seek financing”.

Altria’s current team in Barcelona

For Altria, 2019 has meant a significant investment with the incorporation of new professionals, the expansion of financial providers such as national and international funds, as well as the search for operational excellence and customer service. This lays the foundation for serving larger companies and continuing to offer our clients the best financing solutions for their needs.

One of the company’s milestones in 2019 is the opening of its Madrid office, which will certainly enable the number of clients and the volume of advice to continue to grow this year. Other lines of business that are gaining in importance are strategic and financial consultancy, through which Altria helps clients to improve their financial management and the economic profitability of the business; advisory services for the purchase and sale of companies and the obtaining of capital and new partners; and the intermediation of real estate operations (residential, commercial and industrial).

Altria is a firm founded in 2014 by Albert Gumà and based in Barcelona. Its clients are medium and large companies, to whom it offers its experience in all types of debt and equity financing, and access to more than 150 financial providers including banks, alternative financing, public financing, debt funds and other instruments. In its 6 years of existence, Altria Corpo has positioned itself as a reference in the search for financing for medium and large companies, with an accumulated amount of advice of more than 240 million and more than 400 operations. The scope of the companies advised covers the entire Spanish territory, with a concentration in Catalonia, which represents 80% of the total advised.

Altria Corpo and Coordinadora Sinergia Social, a successful collaboration

Since 2014, AltriaCorpo has accumulated numerous success stories in its relationship with medium and large companies. One example is the fruitful relationship that has been established between Altria and the group of entities and foundations that make up the Coordinadora Sinergia Social, a reference in Catalonia for the so-called Third Sector of Social Action, which includes those private non-profit entities that work for social inclusion and cohesion.

The Coordinadora Sinergia Social offers to the entities that advice a whole series of specialized services of management, with criteria of quality and efficiency. The entities, from different legal forms and areas of specialisation, carry out the direct activities and execute their programmes, both in terms of attention to certain groups at risk of exclusion, as well as training and job creation. With its professional management, the Coordinator supports these entities to achieve technical and economic sustainability, and in turn allows them to focus on their field of experience: people care.

Among the wide range of management services that the Coordinator offers to entities (Human Resources, Labour Management, Accounting, Administration, Treasury, Billing, Communication, Information Technology) is also the financial function. It was also necessary to invest a lot of time and resources in this function since it was an obvious need and of great strategic importance, the constant search for resources to finance the investment projects of the different entities. For this reason, they saw that it could be very beneficial to collaborate with a specialist in financial intermediation such as AltriaCorpo.

Josep Maria Poblet, Consultant Corporate Division at Altria Corpo

In the words of the manager of the Coordinadora Sinergia Social, Domènec Domènech, “when we got to know Altria and the value it could bring us, we saw the process of outsourcing the search for financing as very logical. Not only has it prevented us from spending a lot of time talking and negotiating with banks for each investment project, but it has also allowed us to expand the number of financial providers, some of which were beyond our reach“.

Another aspect that Coordinadora Sinergia Social values about Altria is its knowledge of the whole spectrum of financing and, above all, knowing how to find the best solution for each need. The manager, Mr. Domènech, explains it this way:

“Sometimes companies, out of ignorance or because they do not find any other solution in the banks with which they work, obtain financing that does not fit their needs. For example, they finance long-term investments with working capital solutions. Altria makes a clear diagnosis of what the financial need is and finds the best way to cover it among the available financial providers“.

For AltriaCorpo, the relationship with Coordinadora Sinergia Social has also been very positive. Altria consultant Josep Maria Poblet, who is in charge of the relationship with the Coordinadora, adds the following point:

Altria was already a reference in financial consulting for medium and large companies, but the relationship with Coordinadora and its group has allowed us to understand much better the specific needs of the so-called Third Sector, which represents 4.6% of the total labor market in our country, and contributes 1.5% of GDP). Without a doubt, we have established a relationship that will continue to provide much to both parties”.