Wing Lake Capital has long had a focus on working with and its troubled small businesses involved in high yield trade loans The original Franklin Fund works with customers to “clean up, restructure,” said Baum, who described the company as a “check-writer restructuring firm.”
However, as more companies have “closed” the company’s established Franklin Fund for companies overwhelmed with high-yield debt, many are expressing a need for more growth funding.
Baum said he sees two different groups for the nascent Capstone Fund, which closed earlier this month for $ 50 million, a mix of debt and equity.
The first group consists of companies that have been in distress and are now in growth mode but still don’t have the financial history most banks want.
On that front, Baum noted that the cost of capital Wing Lake can provide is getting significantly lower than it was in the early stages due to the companies’ much more stable position as companies try to break free of payday loan debt.
Other companies, Baum said, will have growth opportunities, but in an area where payment could be delayed by several weeks or months, such as a government contract. In such a case, banks will be reluctant to grant loans.
“So this Capstone fund will allow us to really expand the services we offer our clients and expand our client base,” he said.
Baum acknowledged that such loans are relatively risky, but said the fund is “very selective” in choosing deals, picking only a small percentage. The fund looks for good companies with a great operator who simply lacks “the right capital structure,” he said.
“If you have purchasing power, cut down on your spending … if you have cash upfront to prepay your merchandise costs will obviously go down,” said Baum. “We’re making a plan for the business that says that if you’re well capitalized, you can really afford the debt servicing. At this point, we don’t think it will be a risky endeavor.”