Corporate Debt
Starting with the first bonds issued by the Dutch East India Company in the year 1623 the corporate debt market has evolved to a vital pat of the modern economy. Without the current corporate credit markets society as we know it could not function as illustrated by the financial crisis of 2008. By having a platform that can focus resources on matters of the utmost importance the corporate debt market has allowed many of society’s greatest endeavors to flourish. In the year 2021 the worldwide corporate debt market stood at USD $119 Trillion in total assets as opposed to the stock market at USED $93.7 Trillion. While too much debt can be a good thing, too little debt can also mean that a company is leaving opportunities on the table. As a matter of investing Taurino Capital uses debt financing as a means of achieving our goals and the goals of our partners.
The Right Tool for the Job
Like any tool, when handled properly, debt can be used constructively but if mishandled can cause damage. When considering corporate debt multiple factors come into play. The interest rate achieved is a function of market factors, such as the length of the term of the debt. Is it a short term bill, 10 year note, or a 30 year bond? Is there a sinking fund for repayment? What are the debt covenants and terms of repayment? Is the debt secured or unsecured? How much debt is already in place and will a new issuance be subordinate or superior to any existing debt? We use corporate debt to improve profits and to finance various scenarios as listed below:
OPERATIONS
Whether a company manufactures a product or provides a service, there are times when financing on-going operations through the use of short term or long term debt makes sense. When we consider investing into companies, we sometimes will seek to shore up operations or maximize output through the use of a debt issuance. The interest rate on the debt is usually expressed as an amount above a current interest rate index (Treasuries in the USA and LIBOR in the EU) combined with a measure of the amount of risk that the capital may not be repaid. What matters most is that the capital is used in such a way that once deployed, the resulting cash flow can cover the debt service comfortably with a logical game plan that ultimately sees the debt retired. With our background in corporate finance, Taurino Capital uses debt as a tool to maximize businesses operations.
EXPANSION
Using debt to expanding business operations is a no-brainer. The key to successfully expanding is in the planning and execution, which means that management must be on top of their game. While a bad manager can be given vast resources through debt to the detriment of the company, a great manager can take on a small amount of debt and be quite productive. A smart approach is to analyze the efficiency of the revenues being generated through the use of new debt. Is the cost of new business acquisitions at a level that is profitable? Can additional costs be cut as a result of an investment into business expansion? These are some basic questions that one needs to consider prior to taking on new debt and the cost of debt service. With our background in management consulting and investment banking Taurino Capital analyzes expansions with an eye for increasing revenues while decreasing costs.
ACQUISITIONS
Acquiring assets through the use of debt is a common business practice. Acquiring entire businesses is often done for strategic reasons that fit into a bigger picture. The Leveraged Buyouts of the 1980’s saw the rise of the “corporate raiders” who used debt as a means to buyout companies and then maximize efficiencies through lay-offs, sell offs or other forms of restructuring. While many villainized the practice of a Leveraged Buyout, history has shown that the practice brought a level of efficiency to the capital markets that has placed even greater value on having an on-going enterprise that is healthy. At Taurino Capital we are very familiar with Leveraged Buyouts where debt was the primary means of financing an acquisition. With interest rates at historically low levels, Leveraged Buyouts are common and one of the many tools in our belt.
Interested in working with Taurino?
We are ready to invest and finance companies whose vision and goals are aligned with our own. Contact us to see if we match up.