Keeping critical relationships strong during a difficult time
A multi-national supplier of commodity chemicals to a leading highly-leveraged plastics manufacturer was being pushed to continue to supply product on open-terms and increase sales, due to pullback by competitors supplying the same commodity. The plastics manufacturer, a recognized, valuable brand, produces consumer staples, and was a meaningful revenue contributor to the supplier. The plastics manufacturer was at risk of defaulting on its bank loans and was trying to renegotiate the financial tests in its loan agreements. The supplier was hopeful that the renegotiation would be successful, but did not want to assume the risk of bankruptcy. Also, the supplier couldn’t risk offending a valuable customer by abandoning them in a time of need and jeopardizing a valuable relationship and foregoing the opportunity to increase sales to a clearly permanent market participant.
"My factor stopped factoring" OR "I'm exceeding my limits" OR "My insurer canceled coverage"
A long-time factoring client was gearing up for a seasonal spike in sales. While product was in-production, the client was told that the factor would not be factoring receivables to an important customer “for the time being.” No indication was given for when or if the factor would come back on-line. The supplier could not afford to risk completing production if the factor would not protect the shipments. And, the supplier was not willing to risk assuming a relatively high receivables balance from an iffy customer.
With the purchase of a 6-month Put Option, the supplier:
Continued production and projected revenue with confidence
Locked-in a definite profit margin
Avoided difficult conversations with an important customer and the factor/insurer
For Customers referring Suppliers to ETG Capital for Put Options
A distressed national retailer was having difficulty procuring product on open terms (net-60 days). The retailer was under pressure from a half-dozen major suppliers (domestic and foreign), as well as many smaller suppliers, to provide letters-of-credit or pay on a cash-in-advance basis. The retailer was confident that if the half-dozen major suppliers would ship on open-terms, the retailer would regain leverage with the smaller suppliers and the remaining supply-base would continue to extend open-terms.
By purchasing Put Options, with varying terms, for the benefit of its most important suppliers (and referring other suppliers for Put Options), the retailer:
Kept its entire supply-chain on open-terms
Avoided general supplier panic and a “run on the bank”
Preserved hundreds-of-millions of dollars of liquidity (a full cycle of payables)
Avoided the time and expense of dealing uniquely with each supplier (e.g. letters-of-credit, cash-in-advance, shortened terms, smaller orders, etc.)
Increased its borrowing limits under its bank line (revolving asset-based loan)