This document provides an overview of non-traditional sources of credit for businesses through leveraged finance (LF) options like mezzanine debt, private equity, and venture capital. It discusses how the traditional banking model has become outdated and restrictive for many asset-light companies. LF focuses on enterprise value and cash flow rather than hard assets, allowing more businesses to access funding. The document explains different LF products, how to determine which is appropriate based on valuation and use of funds, and how LF can significantly expand borrowing capacity compared to traditional asset-based loans.

1. 6/6/2013 1
Non-traditional Sources of Credit
David Barnitt

2. Background – David Barnitt
• 20+ years as an investor, entrepreneur, & middle market investment
banker.
• CPA – MBA from Columbia (born & raised in NJ)
• Founder Attract Capital LLC in 2000. Long Island-based firm with clients
around the US, Europe and South America.
• Founder of NY M&A Council.
• Been involved in over $1.1 billion of middle market transactions – about
100 deals over last 20 years.
• Educational Mission to teach business owners to use leverage finance
techniques to fund their companies.
• We design deal structure, growth story and take deal to the mezzanine
lending or private equity market.

3. 6/6/2013
3
Bank Credit Ratings
Typical Bank Internal Risk Rating Grades
Source: 2007 Inmatrix, Inc

4. 6/6/2013
4
What this means
• It has become harder to become bankable.
• Universe of midsized companies that cannot
obtain bank financing has grown signficantly.
• Certain industries are more difficult for banks.
• Important to find alternative credit providers
to fund growth.
• Bank financing and alternative financing are
complementary.

5. Commercial Finance (“CF”) vs.
Leveraged Finance (“LF”)
• CF – Traditional Banking or Finance Companies with
Asset based lending focus.
• LF – Private Equity, Mezzanine, Second Lien, BDC’s,
SBIC’s with a cash flow based lending focus.
• Hard asset value drives CF.
• Enterprise value drives LF.

6. Problem with Traditional Banking
• Banks have obsolete and outdated view of
determining creditworthiness.
• US deindustrialization requires new ways to measure
credit rating.
• For last 15 to 20 yrs. New business formation
dominated by asset light companies.
• Technology, Service, Marketing firms.
• Great EBITDA, little balance sheet hard assets.

7. Issues Surrounding
LF transition into CF
• LF is hyper fragmented industry.
• Not regionally based.
• No marketing profile or strong industry trade
presence.
• Very much relationship based.
• Hard to find LF capital providers.

8. ABC’s of LF – Various needs
• Sponsor Buy-out (control).
• Management buy-out (control or non-control)
• Venture Funding (non-control)
• Growth Equity (non –control)
• Growth Financing (non-control)
• Refinancing (non-control)
• Acquisition Financing (either)

9. ABC’s of LF – Different forms of capital
• Private equity
• Venture Capital
• Growth Equity
• Mezzanine (Subordinated) Debt
• Term Debt.

10. ABC’s – which capital forms do I use
for which deals?
• Depends on
– Current enterprise valuation.
– Use of funds (what you want to do).
– Growth story.
• There are guidelines but not hard & fast rules.

11. Enterprise Valuation
• Based on multiple of “Pro Forma” EBITDA.
• Range is 5 to 7 times.
• Value that company would sell for IF it was for
sale.
• How does capital being raised compare to this
value.
• Pro forma is the key.

12. 6/6/2013
12
Loan Layers
Mezzanine Debt
Bank loanBank loan
Mezzanine Debt
Equity

13. The Power of LF
Company 1 Company 2 Company 3
Accounts Receivable 1,800 45 12,000
Inventory 0 0 0
Fixed Assets 150 300 200
Total Assets 1,950 345 12,200
Historical EBITDA 1,500 350 3,500
Pro Forma EBITDA 3,500 650 5,900
Mezzanine Debt Raise 8,000 1,800 18,000
EBITDA Multiple of 2.3 2.8 3.1
Mezzanine Debt Raise
Asset Based Debt Capacity 1,440 36 9,600
Mezzanine (LF) based Debt Cap. 8,000 1,800 18,000
Difference 6,560 1,764 8,400

14. For More Information
• Visit our website at www.AttractCapital.com
6/6/2013
14