Debenture Debt Capitalization Finance
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The Debenture debt Capitalization finance program is a hybrid debt program that utilizes the CLASS "A" preferred shares of a company as security (much like a mortgage lien is applied for a conventional asset-based loan), financed in the form a debt/debenture, to provide funds for a business / project plan / operation. The capital finance is pre-qualified to capital finance markets whose Portfolio AIG is the Correspondent and Underwriter for. Both existing and new business applications can utilize this debt capitalization finance program on a qualified basis.
The financing provides for a simple fixed interest rate (qualified to current rates of return [ROR]) and whose payment is repaid quarterly, semi-annually or annually (interest only) according to the qualified terms of the capital finance. Principal repayment is repaid at the end of the term of the loan finance. The term of the finance is qualified based on a company's pro forma and use of funds and determinate market risk as ascertained by the capital finance market(s). The finance ranges from a minimum of a 3 yr. term to a maximum of a 10 yr. term. Incremental term periods typically follow a 3-5-7 or 10 year schedule as qualified.
The capital finance also carries with it a convertible feature that allows (optionally and by mutual agreement) for the Lender to convert its security shares to “c" class common and forego repayment of principal & interest payments in lieu of a longer term relationship with the client and business/project; based on conventional dividends then tied to a company's pre-tax earnings.
Underwriting typically takes approximately 45 to 60 days to pre-release for close dependent on client readiness and then approximately another 5-10 days to disburse and close the complete project/business finance. These are only estimates. Individual timelines may vary.
A one-time underwriting commitment cost which includes all legal, accounting, marketing, Fiduciary/closing responsibilities and ongoing management to pre-release applies. This cost may also include the establishment of a company charter for the proposed client (as qualified and/or required). This cost is calculated on a sliding scale of the capital finance to be underwritten and qualified based on business, market and associated risk analysis and is paid once a Debenture Underwriting Service Agreement (DUSA) is executed to underwrite the proposed finance. THERE ARE NO OTHER costs that apply. Please speak with your AIG representative for a detailed analysis and qualification as it applies to your specific project/business plan and underwriting cost thereto.
Scope of underwriting; Direct & Indirect: (i) Review and qualification of business/project underwriting file to include all analysis tools/data for the debenture finance including but not limited to accounting, risk analysis, legal drafting and completion of finance note and security agreements, preparation of security certificates to be issued, related company resolutions, market & feasibility analysis, website development as required, all related legal work, processing for pre-release/close. (ii) AIG closing assistance/oversight, Fiduciary services (optional & as agreed to), document / certificate issuance and management for closing of the individual finance closing as required for same to take place. (iii) Underwriting/File Submission to client generated sources on behalf of the client in their own finance efforts, if any, of the proposed financing as AIG may be called upon by the CLIENT and at AIG’s discretion and by mutual consent to act upon same.
> A post-closing registration/certificate release fee to AIG of 0.125% of each apportionment of the total capital investment finance MAY be charged as determined and is applicable.
> Client legal fees with their own representative Counsel are independently negotiated and paid for by the client.
> Standard market point cost fees apply, and these are paid on direct basis at loan close. Customary cost is 2.0% of total capital finance or a flat rate cost schedule, deducted from GROSS finance proceeds at close or paid out-of-pocket by the borrower, in either case as qualified.
OTHER:
A capital debenture debt finance, in that it is underwritten as an interest only balloon loan,
has no applicable SEC regulations that apply to it.
The Class "A" preferred certificates of the company being used are solely security for the proposed finance (not unlike that of a mortgage lien utilized in conventional debt finance) and are open to adjustment with no restriction as to the number of certificates that may be issued for security purposes. Like that of a mortgage lien and at the satisfaction/payoff of a proposed loan, the subject certificates are 'released' / returned to the prospective client at the time of loan satisfaction, for them to use as they then see fit/applies to their on-going business operations.
Formal qualification review for this program requires the following documentation to be INITIALLY submitted:
1. Complete Executive Summary
2. A Ramp up schedule timetable to reach year ONE (1) Positive cash flow
(per the 10-year proforma) sufficient to begin servicing finance interest payments.
(Templated provided by AIG)
3. A detailed use of funds summary
4. A year to date P&L and prior FULL calendar year P&L (existing companies ONLY)
5. A Financial ability/acknowledgement and confirmation letter of client understanding of
Finance Program / related costs et al. (Template provided by AIG)
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Conventional Finance Programs
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AIG Ltd. Debt Program / AIG/WFSH CAPITAL PORTFOLIO
Minimum loan size: ranging from 5 million dollars; however, we can on an individual and qualified basis work closely with you to meet your needs, in an effort to meet your financing requirements.
Products & Services include:
Construction loans for commercial and residential development*
Land acquisition & development loans*
Secured and unsecured lines of credit
Interim financing (as qualified on a case basis) arrangements for completed structures
Long-term financing for completed structures
Lending to Developers**
Permanent Debt Finance
* Must include permanent term debt as part of qualification for proposed finance.
**Commercial Mortgages provides solutions to middle-market commercial real estate investors and developers
seeking financing for income-producing properties. Explore our range of loan products.
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Commercial Mortgage & Permanent Debt Finance products:
Manufactured home communities' Self-storage industries.
Office complexes
Industrial parks
Retail properties
Healthcare Facilities
Permanent Debt Financing Options:
Front Runner Program: loan size of $1 million to $4 million Standard fixed rate financing: loan size of $4 million to $50 million
FNMAE commercial multifamily: loan size of $3 million to $50 million. FMAC Commercial multifamily: loan size of $3 million to $50 million
Large Loan Financing — loan size of $25 million to $250 million. Variable-rate
HUD insured Commercial Multifamily and Healthcare Facilities
Land Development Loans*
* Must include permanent term debt as part of qualification for proposed finance.
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> a. Commercial Mortgages* providing land development loans to middle-market commercial real estate investors and developers seeking to acquire and/or develop unimproved land for residential or commercial use. Subject to the characteristics of each transaction, general product characteristics include the following loan types:
- Residential development loans and related letters of credit
- Commercial land development and related letters of credit
- Land acquisition loans considered, based on debt service capacity of borrower
- Residential or commercial land development — maximum advance equal to the lesser of 80% loan to cost (LTC) or 75% loan to value (LTV)
- Land acquisition loans — maximum advance equal to the lesser of 60% LTC or 50% LTV advance rates are project- and sponsor-specific, based on a variety of factors
Terms 2- to 3-year maximum term, depending on project size
Loan Agreement Conditions/Covenants
Accelerated release prices
Lot take-down or principal reduction schedule set
Annual financial reporting
Applicable financial covenants such as tangible net worth, cash flow, and leverage
Short term floating rate loans
> b. Commercial Mortgages* providing short-term floating-rate loans to middle-market commercial real estate investors and developers seeking to build, acquire bridge, expand, rehabilitate, or reposition income-producing properties. General product characteristics include:
Borrower Real estate professionals with good track record and experience with the type of project they’re seeking financing for. Potential for ongoing relationship (preferably three to four deals per year) Key sponsor(s) with a net worth of at least $5 million and liquid assets of $500,000 minimum.
* a & b above must include permanent term debt as part of qualification for proposed finance.
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AIG/HVSMAD Capital Portfolio:
Hotel Investment / General Parameters:
> Investment size: 5 to 15 million
> Investment Term: 24 to 60 months
> Maximum Loan to Value: 95% (may be higher when combined with equity investment)
Transaction types:
- Acquisition
- Refinancing - Recapitalization
- Renovation or repositioning
Transaction Structures:
- Sr. mortgage B-notes
- 2nd mortgages
- Mezzanine debt (Sr. or Jr.)
- Subordinated debt participations
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AIG/GECF CAPITAL PORTFOLIO:
Golf Course Financing Program
Finance product options as follows:
Large single-asset transactions and portfolio financing
Fixed or floating rate; with flexible prepayment and terms. Financing of daily fee, semi-private and non-equity private courses
Acquisition & Refinance Member Owned Clubs
Transaction Size:
Portfolios of $10 million to $125 million
Single assets: $5 million to $40 million & $5 million to $25 million
Asset Types: Semi-Private Non-Equity Private 501(c) 7 owned 10 + years old
Structure 3- to 7-year terms 25-year amortization, interest-only first two years. Maximum of 85% loan-to-value 2-year lockout. Non-recourse Up to 10- year terms. 20-year amortization. Interest-only during renovation period. Maximum of 70% loan-to-value 5-year lockout non-recourse
Interest Rates and Costs Fixed or floating at competitive spreads over corresponding indices. Generally, 1/2% origination fee and 1/2% exit fee. Fixed or floating at competitive spreads over corresponding indices. Generally, 1/2% origination fee and 1/2% exit fee
Other Features Earn outs. Flexible prepayment. Ground leases and operating leases (longer term preferred) .US and Canada Flexible prepayment. US and Canada
Non-Qualifying Construction Loans Residential/golf developments “Alternative” golf facilities (i.e., golf driving ranges, par 3’s) New clubs
NOTE: This information is intended to give you our typical financing deal parameters. If your transaction does not meet these parameters, please contact us to review the specifics of your proposed project and whether we can provide finance programming that will meet your needs.
The information furnished here is preliminary. This is not an offer or a commitment. Rates, terms and conditions may be changed without notice. All transactions are subject to submission of a formal application, written underwriting commitment approval and underwriting.
Approved terms may vary.
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Sale / Lease Back Finance
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AIG - Sale/Lease back Capital Portfolio:
Criteria All property types. Strong small, middle market and investment grade tenants preferred.
Transaction size: $5MM-$50MM+ per property Multiple property deals encouraged
Structure / Terms: Absolute Net Terms 10-25 years, closing typically within 60 days
Benefits Cash sale for 100% fair market value Expansion capital Enhanced liquidity
AIG - Owner Occupied/Single Tenant Capital Portfolio:
Borrowers: Owner-occupied and Single Credit Tenant properties
Annual Sales: $20 to $150 Million
Annual Revenue: Greater than $20 million
Industries: Retail, Manufacturing, Government, Distribution Warehouse, Grocery, Research & Development, Office, Other
Average Borrower Transaction Size: $3MM
Company Type: Mix Private/Public
Collateral Financed: Real Estate 70%, Equipment 30%
Customer Locations: U.S. and Canada
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Bond Guaranty Finance program
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AIG/Interest Only Bond Guaranty Program:
Loan Summary/Description:
Interest only (Balloon) loan with partial principal repayments during the loan term / balloon payment guaranteed by US Govt. Bond
1. Proposed loans are pre-qualified based on the Pro-forma Income & expense reports supplied to AIG by client accountants, and in lieu of standard equity/debt for such proposed loans, qualify the proposed financing for an interest only loan where the proposed loan amount is secured/guaranteed by a government bond. The cost of this bond is additionally funded as part of the proposed loan by AIG. The borrower will then make interest only payments on the entire amount funded including the bond cost and partial principal repayments, repaying the bond cost, with the remaining NET principal amount of the loan disbursed to the borrower at loan close paid at the maturity of the bond guaranty/loan term (20 years, one day). *
* Bond terms range from 15 to 30 years as qualified
The interest only payments adjust on a declining balance basis as the partial principal payments are made. These payments will commence in year 3 of the loan and continue through year 20.
Other Product facts:
2. The Loan is modified Interest only Loan.
3. The term of the loan is 15, 20, 25, or 30 years as qualified. Interest only is paid for the term of the loan on a declining balance principal basis Partial principal payments from business cash flow are made in years 3 through the end of the loan term. These payments comprise the repayment of the additional funding cost of the bond that guarantees the net loan to the borrower.
4. The Loan is further secured by any other underlying real assets, Contract & Account receivables, and all FF&E, etc.
5. The repayment of the principal is guaranteed by the use of Government bond that will repay the initial business/project loan at the end of the term of the loan. The cost of this Bond is being funded as part of the Business/project financing. The interest carry on the portion of the financing is included in the overall interest only payments that the borrower will make. The repayment of the principal cost of the bond is the partial principal payments (stated in ‘b’ above), that the borrower will make from cash flow, pro rata, in years 3 through 20.
6. Should the loan default at any point during its term, the underlying collateral assets are sold to pay off any open defaulted interest payments and that of the cost of the bond. Any remaining funds, if any are, remunerated to the borrower less lender expenses for default and liquidation. The bond continues to grow to term and the original principal loan amount, guaranteed by the bond, matures and pays off the principal balance.
Program Benefits:
a. Reduction of Borrower debt Burden by interest only loan
b. Increased cash flow to borrower NOI at debt thus allowing more leverage in making loan payments
c. Principal security to the lender, 100%, and underlying standard security of assets.
d. Lender IS NOT reliant on sale of assets in the event of loan default to repay ANY of the principal loan amount.
e. Capital exposure to the lender is only that of interest unpaid at default and the cost of the bond, BOTH of which can be recaptured by the sale of underlying loan/mortgage assets.
Program Assumptions:
Lender will in the majority of cases permit the bond to reach term and mature to its full face amount in the event of a loan default. As with all programs there are certain trade-offs and with this one the fact that the principal is guaranteed is offset by the bond growing to maturity to achieve that guarantee. It simply cannot be both ways: “You can not reduce the risk to the lender by providing a guarantee and then conversely defeat the very foundation of the program by having the lender take an early liquidation if the loan fails.” In the event that for some internal accounting reason the lender repatriate funds from a defaulted loan, if the lender MUST repatriate funds, that they do so by marginal leveraging of the growth equity in the bond during its growth cycle. This leveraging can be done on a case basis, pro rata, taking into consideration cost for carry in the interim vs. the bond growth rate/remaining term to maturity. There is of course a trade-off here as well against the full face of the bond at maturity vs. the cost to carry the leveraged equity taken, but again, this assumes that a smart lender will accept this based on the fact that money he leverages will be put into new loans that produce new yields.
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AIG Ltd. Commercial Bancorp Treasury Services Department
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AIG Ltd. Commercial Bancorp Fiduciary Treasury Services
As part of AIG underwriting services AIG will also consider, on a qualified basis, to underwrite for a proposed client a Standby Letter of Credit (SBLOC) instrument.
Following is a summary of SBLOC details, definition and costings under this program. Please consult with your AIG Representative or Referral Correspondent for further information. Or feel free to contact AIG Treasury Services at aigtreasuryservices@aliantltd.com.
Thank you.
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Standby Letter of Credit – SBLOC
(Summary & Definitions)
What is a 'Standby Letter of Credit - SBLOC'
A standby letter of credit (SBLOC) is a guarantee of payment issued on behalf of a client that is used as a 'credit enhancement" or "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer's credit quality and repayment abilities. The entity issuing the SBLOC performs brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then sends notification to the required entity of the party requesting the letter of credit (typically a seller or creditor).
USE BREAK DOWN for 'Standby Letters of Credit - SBLOC'
A standby letter of credit shows a company’s credit quality and ability to repay loans. Although an SBLOC is not underwritten for primary debt payment/repayment, it helps fulfill business obligations in case the business stops operations, cannot pay its vendors or becomes insolvent.
Small businesses often face difficulty when securing financing. For this reason, standby letters of credit may be especially beneficial for encouraging investors to lend money to a company. In case of default, investors are assured they will be paid principal and interest from the bank through which the SBLOC is secured.
Obtaining a Standby Letter of Credit
When requesting a SBLOC, a business owner proves to the bank he is capable of repaying the loan. Collateral may be required to protect the bank in case of default. The issuer typically provides a commitment letter to the business owner within one to two weeks (10-15 business days) of receiving and qualifying documentation. The business owner must pay an SBLOC fee for processing, underwriting, legal, fiduciary and related processing, typically at a cost of 2 to
5% of the SBLOC value ( at the time of issue ) along with an SBLOC fee for each year that the letter is valid. This fee is typically 1/8 to 1-10% of the SBLOC value. If the business owner meets the criteria outlined in the contract before the due date, the business owner can cancel the SBLOC without further charges.
Examples of Standby Letters of Credit
A financial SBLOC, the most common type, is typically used in international trade or other high-value purchase contracts where litigation or other non-payment actions may not be feasible. A financial SBLOC guarantees payment to the beneficiary if criteria outlined in the contract are left unfulfilled. For example, an exporter sells goods to an overseas buyer who guarantees payment in 30 days. When the payment does not appear by the deadline, the exporter presents the SBLOC to the importer’s bank and receives the payment.
A performance SBLOC ensures the time, cost, amount, quality of work and other criteria are fulfilled in a manner acceptable to the client. The bank pays the beneficiary if any of the written obligations are unmet. For example, a contractor guarantees a construction project will be finished in 90 days. If work remains incomplete after the 90-day period, the client can present the SBLOC to the contractor’s bank and receive the payment due.
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AIG Standby Letter of Credit Fee Schedule
AIG Portfolio Standby Letter of credit offering amounts (in USD only): 1 million to 25 million dollars, US and 25mm to 50mm, maximum face value, on an individual / qualified basis.
AIG offers the following two billing arrangements for Standby Letters of Credit. Clients may choose Option B only for Standby Letters of Credit that are issued to secure public unit deposits.(a)
- Upon issuance of a Standby Letter of Credit, AIG charges:
- An SBLOC underwriting, processing, Legal & closing Fiduciary fee of 5% of the face amount of the Standby Letter of Credit issued *; and
- A fee equal to 1/8 of 1% per annum based on the amount of the Standby Letter of Credit.
- Upon issuance of a Standby Letter of Credit that secures a public unit deposit, the AIG charges:
- An SBLOC underwriting, processing, Legal & closing Fiduciary fee of 2.5% of the face amount of the Standby Letter of Credit issued.
- In addition, the Bank charges a monthly fee equal to 1/8 of 1% per annum based upon the monthly average balance of the public unit deposit accounts secured by Standby Letters of Credit, subject to a $15 minimum fee per month per Standby Letter of Credit.
Under this billing arrangement, the Bank periodically verifies the monthly average balance of the public unit deposit accounts secured by the Standby Letters of Credit. The fee for this verification is the same as the collateral verification fees published under Collateral Forms.
A processing fee of $1000.00 is charged for any draw request on a Standby Letter of Credit.
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(a) Public unit accounts include deposit accounts of the United States, including federal agencies; any state, county, municipality or a political subdivision thereof; the District of Columbia, Puerto Rico and other government territories; and accounts owned by an Indian tribe.
* SBLOC Fee schedule:
> up to 12mm: 5%
> 13mm to 25mm: 2.5%
> 25+mm as qualified
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AIG Underwriting, Commitment, & Client Expenses / Fee Policies
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Clients are responsible for 3rd party payments as follows:
Borrower related expenses including but not limited to market & feasibility studies, appraisal reports, engineering reports, environmental report(s)(as applicable) and other due diligence related studies and expenses. These are typically paid ongoing during the underwriting process.
A standard Underwriting commitment fee will be charged and collected at such time as a formal commitment to underwrite a proposed loan, debenture capitalization debt finance or related finance product is issued. The amount of the commitment fee is qualified and priced up to 2.5% of proposed loan amount and credited to the total loan point cost (as may be applicable & qualified based on the proposed finance program being requested), with the exclusion of Debenture Capital Debt Finance loans.
Loan Point fee balance: As it applies to all purchase money finance the balance of remaining points on a loan are due from the borrower at closing. In cases of a refinance and subject to debt burden qualification the point cost may be included in/added on to the total loan amount and that cost paid from same at the time closing of the proposed refinance. In the case of Debenture Capital Debt finance and subject to debt burden qualification all closing costs may be included in the proposed loan amount along with a credit (refund) of the loan underwriting commitment fee paid prior to loan close at the time of execution of the Loan underwriting commitment.
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INITIAL Documentation requirements for
PREQUAL of conventional finance Applications
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AIG GENERAL Initial Submission Requirements for ALL project pre-qualification:
> Project Executive Summary
> Project Cost Analysis / Use of funds summary
> Operating / Sales Pro Forma (5-year income & expense for qualification)
> A RAMP UP summary schedule (the time it will take for the project to reach positive cash
flow sufficient to service the proposed loan) in yrs.
> Client Financial ability letter
> Client formal Business information summary letter
> Client Business resume
> Applicant(s) Personal YTD Personal Financial Statement (parties owning 10% or more of the
proposed borrowing entity) _________________________________________________________________________________
Disclaimer: All information published on this website subject to change without notice and/or market variations. Please check regularly for the most up-to-date information.
Thank you.
v. 1-2024