Home
| Contact Us | Family of Companies | Investor Login

Click to See What Happens When you Partner with Prudent Capital

Preferred Equity | Mezzanine Debt for Real Estate | Mezzanine Debt for Operating Businesses | Is Mezzanine Capital Right For You?

-Mezzanine Debt Flyer
-Warrantless Loans Flyer
-Is Mezzanine Capital Right For You?

-Investment Criteria
-Value-Added Services
-Financial Terms
-Request for Captial Checklist
-Investment Process
-Portfolio Manager
-Porfolio Companies
-View Printer Friendly Version

 

Mezzanine Debt For Operating Businesses:

Investment Criteria

Prudent Capital provides expansion capital to later-stage, privately held operating businesses. Such businesses must have a commercially proven product or service plus substantial revenue and profits (no start-ups will be considered).  Depending on the type of Company, Prudent Capital evaluates many criteria as part of its disciplined and opportunistic approach to investing. The emphasis placed on each criteria is dictated by the particular situation. Some of these criteria include:

• a strong, experienced, committed management team that is financially motivated and whose incentives are aligned with Prudent's investment and whose business philosophies are consistent with Prudent's
• sound financial and business information reporting capabilities that allow Prudent to evaluate and monitor the business's key risks and success drivers
• a well thought-out, credible operating plan and financial forecast
• a demonstrated track record, strong market position and potential for future growth
• strong customer and vendor relationships
• demonstrated ability to achieve a lower cost of operations and large margins sufficient to generate reasonably predictable free cash flow
• minimal cyclicality/strong downturn resiliency
• low risk of technological obsolescence
• favorable gross margins and net income as compared to competitors
• a use for the funds that will quickly and dramatically improve profitability
• valuable unpledged assets that could help repay Prudent's investment in the event operating earnings suffer an unexpected decline
• a sound capital structure that supports anticipated growth
• an ability to service all obligations (including Prudent's investment)
• multiple credible exit options
• significant barriers for competitors to enter the business

 

In addition, all investments will:

• involve businesses that Prudent Capital believes it has the expertise to evaluate
• have sufficient credit quality and debt service coverage
• meet Prudent's return criteria
• be structured to provide as much down-side protection as possible
• provide multiple potential exit strategies to gain liquidity and realize equity appreciation


Value-Added Services

Prudent Capital’s Portfolio Manager, its Advisory Committee and many of its Investors possess excellent track records of building value for companies and shareholders and will be available to assist the management teams of Prudent Capital’s portfolio companies in devising appropriate strategies and tactics to advance the near and long-term goals of the portfolio companies

Prudent Capital’s Portfolio Manager, its Advisory Committee and its Investors will attempt to use their contacts to help the portfolio companies network with potential customers, vendors, acquisition candidates, professionals and investment bankers

A representative from Prudent Capital will:

• attend all board meetings

• review –

monthly operating statements (with comparisons to the prior year and the budget),

annual financial statements and budgets, and

five-year projections (updated annually)

• assist with the strategic planning of the business

• assist with the senior secured borrowing needs of the business

• help optimize the exit strategies for the owners of the portfolio company

 

Due to the collective expertise and contacts of Prudent Capital’s Portfolio Manager, Advisory Committee and Investors, many potential portfolio companies seek an investment from Prudent Capital not merely based on the financial terms of the investment, but also due to the desire of such potential portfolio companies to obtain a partner that can make a difference in helping to build their companies


Financial Terms

• Prudent Capital will invest $1 to $6 million in a portfolio company with its own funds and will entertain single investments of up to $10 million that it will fund with a combination of its own capital and that of its co-investors (with which Prudent Capital has strategic alliances)

• Prudent Capital will allow interest only for up to 2 years if desired and then require that the loan be fully amortized over a 3 - 5 year period thereafter
            Frequently, there are no prepayment penalties after the second year

• Prudent Capital’s investment will most often be in the form of a secured loan (subordinate to an agreed upon amount of senior debt) which will bear interest at the rate of 12% to 16% per annum plus warrants in the ownership of the portfolio company plus origination fees such that the total cost of capital to the portfolio company equals 22-25% compounded per annum
            Frequently, Prudent Capital will agree to cap its overall rate of return

• Prudent Capital charges 2% of the loan amount as an origination fee

• Prudent Capital's out-of-pocket costs incurred in connection with an investment (legal, travel, due diligence, etc.) will be reimbursed by the portfolio company


Items Required for Evaluation for a Request for Capital

• 3 years’ historical financial statements prepared by an outside accountant (preferably audited)

• As current as possible year-to-date operating statements

• 3 - 5 year projections with assumptions articulated

• Organization chart with all employees and their compensation listed

• Marketing materials used by the business

• A schedule of the amount of capital desired and its intended uses

• A business plan or other narrative describing the operations of the Company, its future plans and how such plans are to be achieved

• A list of competitors and industry trade associations

• Information concerning the size of the industry and its growth potential


Investment Process

1. Prudent Capital welcomes requests for capital directly from potential portfolio companies as well as from intermediaries.

2. After a preliminary review of the business model, the management team and the reason capital is needed, a timely decision will be made whether a complete review of the business plan and additional information is desired.

3. After a favorable review of the business plan and other materials, the Portfolio Manager will either visit the portfolio company or participate in a conference call to meet the management team, review the company's operations and to answer any questions regarding the company's materials.

4. After a favorable meeting, additional information will be requested from the portfolio company and, upon receipt of such information, a term sheet will be prepared by Prudent Capital.

5. After the execution of a mutually agreeable term sheet and the payment of the required expense deposit, the Portfolio Manager will compile the underwriting package required by Prudent Capital and its Advisory Committee to approve the transaction. Such package includes:

a. a narrative describing the operations of the portfolio company, the industry of the portfolio company, the pros and cons of the transaction and how the portfolio company satisfies Prudent's investment criteria;

b. historical financial statements of the portfolio company (audited if available);

c. projections of the free cash flow to be generated by the operations of the portfolio company for the next 5 years;

d. the executed term sheet; and

e. an organization chart for the portfolio company.

6. After the approval of the investment by Prudent Capital's Advisory Committee, the due diligence and legal documentation of the investment will commence.

7. Funding of the investment will occur at closing when all of the documentation is complete and executed.

8. Depending on the availability of information from the portfolio company, the entire process usually takes between 30 and 60 days.


Portfolio Manager

• Prudent Capital’s Portfolio Manager is Steven J. Schwartz. Mr. Schwartz is a CPA and an attorney with over 25 years of experience working with, investing in, running and evaluating various companies in various industries

• For the past 24 years, Mr. Schwartz has been Chief Financial Officer and General Counsel to a diversified group of companies in which Howard and Stanley Bender had an ownership interest. These companies included general contracting, real estate leasing, property management and development, radio broadcasting, telecommunications, software development, wholesale distributorship and a golf course.

• Prior to these activities, Mr. Schwartz practiced law for 3 years with the firm of Tucker Flyer (now merged into Venable) and practiced public accounting for 5 years with the firm Aronson and Company. He received a Bachelor of Arts degree in economics from the University of Maryland and a law degree with honors from the University Of Maryland School Of Law.

• Mr. Schwartz currently serves on the board of Capital Bank, N.A.
Mr. Schwartz  


Portfolio Companies

Park Production Group

• Production and post production editing facility located in Richmond, VA

• $1 million of mezzanine debt to assist in the expansion of their business into Washington, DC


Citistorage, Inc.

• Archive box storage company located in Brooklyn, NY

• $3 million of mezzanine debt to assist in the purchase of additional land for the construction of additional warehousing facilities

• $1.02 million of mezzanine debt to acquire the right to store additional archive boxes

• $2.5 million of mezzanine debt to restructure the Company’s debt

• $.5 million of debt as part of a $2.8 million second deed-of-trust financing for the Company’s real estate


KP Sports, Inc., T/A Under Armour

• Performance sports apparel manufacturer located in Baltimore, MD

• $3 million of mezzanine debt to help finance their rapid growth

• $3 million bridge loan until the Company’s receipt of private equity


TCOM, LP.

• Aerostat manufacturer with headquarters in Columbia, MD and operations in Elizabeth City, NC

• $2.9 million of mezzanine debt to help finance certain large, long-term contracts

• $5.0 million of mezzanine debt to recapitalize the Company and redeem its preferred stock


Impact Office Products

• Office supply distributor with operations in Washington, DC and Philadelphia

• $2 million of mezzanine debt to help finance their rapid growth


Vista Technology Services, Inc.

• Government contractor specializing in data integration and decision support services for military facilities located in Herndon, VA

• $1 million of mezzanine debt to assist in the management-led buyout of the Company


Galaxy Tire & Wheel, Inc. / GPX International Tire Corporation

• Manufacturer and wholesaler of off-the-road tires for agricultural, construction and industrial equipment with headquarters in Boston, MA

• $2.35 million provided as a sale-leaseback of the Company’s headquarters to provide additional working capital for their new manufacturing operations in Serbia


CBLPath, Inc.

• Provider of outpatient anatomic pathology laboratory services to sub-specialty physicians with headquarters in Ocala, FL and laboratories in Mamaroneck, NY and Lake Success, NY

• $2.5 million of mezzanine debt to assist in the purchase of 75% of the Company


Evolvent Technologies, Inc.

• Provider of business information technology services primarily to the federal government primarily in the cyber-security and business intelligence areas with locations in Falls Church, VA and San Antonio, TX

• $2.25 million of mezzanine debt to assist in the leveraged management buy-out of the Company


OneVision Utility Services, LLC.

• Provider of damage prevention services to utility companies by determining the location of their underground facilities in order to prevent utility network outages and to safeguard the general public from the consequences of damages to underground utilities with operations from Washington, DC to Atlanta, GA

• $2.4 million of mezzanine debt to assist in the combination of 2 operating companies and 1 software company in the industry


Viztek Holdings, LLC / 20/20 HealthCare LLC.

• Provider of digital healthcare information technology services and products to doctors’ offices and imaging centers with headquarters located in Jacksonville, FL.   

• $3.0 million of mezzanine debt to assist in the purchase of 75% of the Company


SunCrest Healthcare, Inc.

• Operator of Medicare-certified home healthcare agencies in Jacksonville, FL, Memphis, TN, and Nashville, TN that provides various combinations of skilled nursing and therapy care, as well as other services, in the home of the patient

• $5.0 million of mezzanine debt to help acquire the agencies and provide working capital to the Company

Strategicon LLC.

• Investment entity controlled by the CEO of CBLPath, Inc, a provider of outpatient anatomic pathology laboratory services to sub-specialty physicians with headquarters in Ocala, FL and laboratories in Mamaroneck, NY and Lake Success, NY  

• $2.25 million of mezzanine debt secured by the CEOs stock in CBLPath, Inc. to provide investment diversification

Macfadden

• Government contractor located in Silver Spring, MD that provides integrated information technology and program management support services to the United States Agency for International Development (USAID), Treasury and other government agencies 

• $4.6 million of mezzanine debt to refinance debt incurred in connection with the acquisition of another government contractor.

Damage Recovery Systems, LLC.

• Reverse logistics company located in Pottstown, PA

• $4.75 million of mezzanine debt to help aquire the company

Southside Container & Trailer, LLC.

• Custom container fabricator located in Waterboro, SC

• $2.2 million of mezzanine debt to help aquire the company

ICAT Logistics, Inc.

• Columbia, MD based company that provides worldwide transportation logistics and expedited freight services directly to customers through a network of agencies/franchisees

• $1.5 million of mezzanine debt to provide growth capital

American Cadastre, LLC.

• Herndon, VA based full-service records management company that specializes in licensing and installing software for state and local governments for their Justice and Land Records Departments

• $3.0 million of mezzanine debt to provide growth capital

Innovative Discovery, LLC.

• Arlington, VA based litigation support company that provides a variety of digital investigations, including computer forensics, incident response, eDiscovery, legal review, IP theft, compliance auditing and information assurance

• Up to $4.5 million of mezzanine debt to redeem non-active owners and to provide for growth capital

Blue Raven Technologies/ReverTech Solutions

• Reverse logistics company located in Boston, MA that specializes in the repair of complex electric devices such as tablets, laptops, and desktops

• $1.75 million of mezzanine debt to acquire a company

Snowbird Environmental

• Ruggedized heating and air conditioning systems manufacturer for the military located in Jacksonville, FL

• $3.5 million of mezzanine debt to help acquire the company

Atherio, Inc.

• Global IT consulting company with a focus on Oracle database implementations and off-shoring work in India

• $6.0 million of mezzanine debt to help acquire two companies

Penrod

• Distributor of a broad selection of wood, metal, and PVC specialty building products headquartered in Virginia Beach, VA

• $3.5 million of mezzanine debt in conjunction with a debt recapitalization of the company

Adoration Health

• Medicare and Medicaid certified home health and hospice business headquartered in Nashville, TN

• $4.0 million of mezzanine debt to acquire the certificates of need required to operate in Tennessee

IIT

• Government and commercial contractor that specializes in cyber security, information security, critical infrastructure protection, intelligence communications and electronic warfare headquartered in Herndon, VA

• $5.0 million of mezzanine debt in conjunction with the acquisition of the company

BRE

• Notes receivable secured by fractional interests in operating real estate partnerships and stock of a real estate operating company headquartered in Washington, DC

• $5.3 million as a cash down payment towards the aquisition of the notes receivable