1.
How to Finance a Gap (‘Airball’) in an Asset Based Loan SC Credit Advisors Recapitalization Advisory For the Middle Market A Stone Carlie Company www.sccreditadvisors.com

2.
Table of Contents• Challenge: Financing a Gap 3• Objectives & Considerations 4• Solutions 5• Example of Financing a Gap 6• About SC Credit Advisors 8• Contact Information 10 www.sccreditadvisors.com 2

3.
Challenge: Financing a Gap A financing gap (‘Airball’) in an asset based loan (ABL) occurs when the required funding amount, or existing loan amount, exceeds the value of collateral* (or borrowing base) acceptable to a lender. For example: A Gap … But the Results - ABL lender How Does Borrower will only the Borrower needs this fund a Fund the amount of portion of Gap? capital to the current fund, for need, based example, a on collateral spike in acceptable sales… to the lender Required Funds $ Amount Funding Breakdown $ Amount* Collateral for a lender is typically: Accounts Receivable (A/R), Inventory, Real Estate and Equipment. Borrowing Base equals collateral adjusted for advance rates (e.g., lending 80% of A/R) and reduced by any reserves. www.sccreditadvisors.com 3

4.
Objectives & Considerations • Business seasonality • Rapid inventory buildupFilling a Funding • Large orders • Stretched cash conversion cycleGap Caused By: • Slow inventory turns Obtain Funds • Disruptions in operations • Turning down sales Quickly to • A cash shortage Avoid: Reasonable • Funding size • CollateralBorrowing Cost • Borrower credit • Cash flow Based On: • Adequate maturity • Recapitalization plan in place if Appropriate • Appropriate covenants funding is short term Structure: • Reasonable intercreditor agreements, if applicable www.sccreditadvisors.com 4

5.
Solutions Financing Options for an ABL Financing Gap Factoring or Second Cash Purchase Order Lien Mezzanine Flow Participation Unitranche Financing(1) Loan(2) Financing Loan (‘B’) Loan Facility 1) Leverage borrower’s    collateral(3) 2) Leverage borrower’s cash     flow(4) 3) Recapitalize all or most of the      capital structure(5)(1) Primarily used by companies with lower amounts of EBITDA(2) Institutional or high net worth investors(3) Leverage borrower’s collateral with a lender that views collateral as more valuable, or leverageable, than the existing ABL lender(4) Leverage borrowers cash flow: utilize a lender that will lend against existing cash flow as a supplement to the existing ABL(5) Recapitalize all or most of the capital structure: optimize collateral and cash flow 5

6.
Example of Financing a Gap with a 2nd Lien LoanChallenge• Company has a senior asset-based revolving line of credit with a $30 million limit (secured by accounts receivable and inventory); existing lender won’t increase limit• Immediate working capital need of $40 million to purchase inventory for a large order with abnormally long customer payment terms; additional short- term capital need of $10 millionConsiderations• Borrower’s existing lender has conservative advance rates and limits on certain collateral leaving excess collateral value beyond the existing lender’s borrowing base• Borrower has sufficient EBITDA to service and repay additional indebtedness once the upcoming order is filled www.sccreditadvisors.com 6

7.
Example of Financing a Gap with a 2nd Lien Loan Solution • Borrower utilizes short term, 2nd lien loan provided by a debt fund* to purchase inventory • Loan is repaid upon payment by customer 2nd Lien Loan Provided by Debt fund Debt Fund Financing additional $10 mm Gap $10 mm Borrowing $10 mm Base $40 mm Current Borrowing Base for Existing Max ABL $30 mm Senior ABL $30 mm ABL $30 mm Funding Lender Required Funding Existing Line of Credit Borrowing Base Funding Breakdown* Debt fund has more aggressive collateral valuation and/or advance rates. www.sccreditadvisors.com 7

8.
SC Credit Advisors: Summary• SC Credit Advisors, LLC (SCCA) assists private middle market companies with structuring and raising capital through securities registered individuals*. We also provide credit-related advisory services to companies, lenders, financial sponsors and high-net-worth investors.• Our goal is to develop and implement creative and practical financing solutions for our clients, allowing them to focus on running their businesses.Typical Client Profile for Capital RaisingOwnership PrivateRevenue $10 million to $300 millionCapital Needs $5 million to $50 millionExisting Capital Moderately to highly leveragedStructureIndustries All industries, except development stage companies*Securities transactions conducted through StillPoint Capital, LLC Member FINRA/SIPC www.sccreditadvisors.com 8

9.
SC Credit Advisors: ServicesCorporate and Financial Sponsor• Assisting middle market companies and their shareholders in raising debt and equity capital (structuring, sourcing, negotiating, funding)*• Managing stressed lender and investor relationships, including facilitating the negotiation of loan modifications with existing lender(s), forbearance agreements, waivers, loan amendments and debt to equity swaps• Providing operational assistance and/or leadership in turnaround situations, as neededLender• Providing borrowers with capital alternatives which complement and support a lender’s position• Assisting the lender in exiting loans to troubled or distressed borrowers through a refinancing or full recapitalization• Providing operational assistance or functioning as the turnaround manager in distressed situations to help borrowers improve operating practices and reduce lender riskHigh Net Worth Investor• Sourcing, structuring and/or evaluating complex debt and equity private placements*• Evaluating existing investments for proper structure, risk, return and control parameters*Securities transactions conducted through StillPoint Capital, LLC Member FINRA/SIPC www.sccreditadvisors.com 9

10.
Contact Information Headquarters 101 South Hanley Road Suite 800 St. Louis MO 63105 GREG PORTO GREG TOBBEN Office: 314.889.1197 Office: 314.889.1196 Mobile: 312.339.2857 Mobile: 314.458.8186 Email: gporto@sccreditadvisors.com Email: gtobben@sccreditadvisors.com A Stone Carlie Company Securities transactions conducted through StillPoint Capital, LLC Member FINRA/SIPC, located at 13051 W. Linebaugh Ave., Suite 101 Tampa, FL 33626 www.sccreditadvisors.com 10