Newsletter

November 2010 Newsletter

 

 

   

 

 

 

Thomas R. Lawrence

Capital Consultants

456 South 10th Street

Opelika, AL 36801

 

334-737-2727

 

tom@cap-consult.com

 

 

 

As I See It! TM 

 

 

The Newsletter for

 

Capital Consultants Company

 

 

Nov 2010

 

Volume 1, Number 5

 

In This Issue:

 

 

 

Welcome from Tom

 

Investing in Private Equity

 

 

As I Like it! TM

 

 

Jimmy’s

 

 

The frost is on the pumpkin and football season is coming to a conclusion. Speaking of pumpkins makes one marvel at the unexpected transformation of Nick Saban’s royal coach to just another gourd. The undefeated Auburn Tigers turned the momentum in Alabama completely around. Now it’s time to complete the trifecta and take care of the Old Ball Coach and the University of Oregon.

The rest of the Western Divison of the SEC had decent seasons with the possible exception of those frisky Black Bears in Oxford. Five teams in the top twenty five ain’t too shabby. I suppose the biggest disappointment to all the Yankee sportswriters was the stunning upset of America’s most beloved also ran, Boise State, at the hands of that perennial powerhouse the University of Nevada.

As the bowl season approaches with ten SEC teams bowl eligible, everyone is going somewhere with the exception of the previously mentioned Black Bears and the currently coachless Vanderbilt Commodores.

Notes on the Egg Bowl: My Bulldogs held off a frantic fourth quarter rally by the Bears, and I have to admit, I was scared until the final whistle. My son, Sam, commented that the older Mississippi State fans are a heck of a lot more worried about losing than they are happy about winning. I believe I can explain why this is so. You can lay the credit for this attitude at the feet of one man, John Howard Vaught.

I saw my first State – Ole Miss game in 1950 (at age 11) and spent the next fourteen years waiting until next year. I was conditioned to expect Ole Miss to win and State to lose. Today, my universe seems out of balance to see Ole Miss in the loser’s bracket; it just doesn’t feel right. To realize the dynasty of Ole Miss quarterbacks from Charlie Connerly to Eli Manning has been reduced to picking through the NCAA reject list just violates everything that I’ve been taught.  Dan Mullen is retraining me, and I believe I will be able to recalibrate my expectations, but last Saturday night was starting to look a lot like déjà vu.  Capital Consultants has enjoyed a brisk increase in the number of clients seeking capital over the last thirty days. We have seen an appetite for both equity and debt. The availability of equity remains very sensitive to current free cash flow and not as dependent on a hockey stick of future growth as it once was. Investors are underwriting equity as if it were debt, and in many cases, offering equity structures that contain many debt elements.

Investing in Private Equity

 

Debt investors on the other hand, are focused almost entirely on excess cash flow. I am seeing many debt offerings structured as a hybrid of debt and equity designed to allow the investor the return of capital, an above market coupon and participation in future cash flows. If the person seeking capital is confident of his business plan, the hybrid offers a chance to obtain capital that can act like equity, but burn off through repayment and future cash participation.

I was recently approached by a company attempting to come out of bankruptcy. New management has turned the business around and they are cash flow positive on current operations. There is a huge overhang of debt and payables left in the hands of creditors. The debt is owned by a regional bank and personally guaranteed by the owners of the company. There is a very good possibility that the bank would take $.50 on the dollar for the debt position and I believe the trade creditors would be glad to get as low as $.25 on the dollar.

In addition to the debt buyout, the investor group would have to invest a sum in cap-ex to fund the future growth of the company. This investment would be equal to 12.5% of the debt buyout plus whatever it takes to satisfy the trade creditors. In this case, I would suggest the investor group purchase 100% of the secured debt from the lending bank at 50% of its value. Further, I would propose that 100% of this loan remain on the books of the company with the following terms.

  • The investor group is owed 100% of the bank debt.
  • 50% of the bank debt will be set up on a five year fully amortizing schedule and 50% will be a bullet payment at the end of five years.
  • The owners will be allowed off of the amortizing portion of the loan and will remain on the bullet. The bullet will have a preferred cash amortization.
  • The investor group will invest a sum equal to 12.5% of the original note as an equity investment with a preferred cash participation element.
  • The amortization portion of the bank debt will be part of the operating statement and must be met on a monthly basis.
  • The bullet portion of the bank debt will have first call on any excess cash flow after operations.
  • The preferred equity will have a second call on any excess cash flow after operations and debt amortization.
  • The balance of any excess cash will be available for dividends to the common shareholders.

At this point, I have not submitted this to the company and the court, but it explains the methodology I would suggest. We’ll see what happens.

 

As I Like it! TM

Jimmy’s in Opelika

As a general rule I will not be reviewing restaurants unless they have a dish or two that might be candidates for best in class. In previous newsletters I talked about The Cozy Corner, Morris’s BBQ and Doe’s Eat Place, all of which excel in their specialties.

Today I am going to deviate from my basic approach and tell you about Jimmy’s in Opelika, Alabama. Jimmy’s does not feature a world class example of any one dish nor is it in a unique setting. Jimmy’s makes my cut based on three things. It has an owner/chef with an obvious love of the food business, meticulous attention to availability of local and regional ingredients and consistent professional preparation and presentation in a pleasant and well appointed setting. All of this is done at very reasonable prices.

Jimmy’s is a New Orleans Creole style restaurant with a limited menu that always features a small selection of seasonally available specials. One of the unique features of Jimmy’s is that each of the menu items is a delicious example of the dish. I have learned to expect to enjoy only the freshest ingredients available. Jimmy will seek out specialty vendors of meats, seafood and produce and pay a premium price to get the very best.

Combining a talented, dedicated chef with the best foods available is a formula for good dining. The service at Jimmy’s is very professional. He clearly is a good guy to work for and compensates his staff generously. This is evident by their friendly, informed attitude and the fact that there is little, if any, turnover. They get to know the customers and the customers get to know them.

Jimmy Sikes, the owner/chef, has changed my attitude about several aspects of the restaurant business. I have grown to appreciate adequate size portions of well prepared and presented dishes in contrast to huge oversized portions offered in many upscale establishments. By maintaining reasonable size portions, he is able to offer a better variety of dishes while maintaining good values.

Jimmy has also demonstrated to me that he takes his obligation to his patrons very seriously. He is fanatical about reservations for instance as he will never knowingly overbook. There are occasions, such as Auburn sporting events and graduation ceremonies, which will slam every eatery in both Opelika and Auburn. Many places will book a reservation knowing that you will find the place packed and may or may not get served. Jimmy will err on the side of customer care and risk a few empty seats.

Jimmy has an outstanding wine list that belies the size and location of his restaurant. Working closely with his wine distributors, he selects the highest quality, mid priced varieties available. Jimmy has an excellent nose for wine and personally chooses each bottle. Jimmy’s has been recognized by several of the wine rating services for its cellar. For those of us who do not, or cannot, use alcohol, Jimmy will have on hand a bottle or two of delicious non alcoholic wines. Jimmy’s is the only restaurant that I have ever seen with this option. This is another example of customer care.

Once each month, Jimmy will host a special dinner and wine tasting featuring a menu of ethnic or national dishes. The evening will start with a general welcoming period during which several wines will be offered as apéritifs. There will follow a soup course which provides me with the opportunity to tell you that Jimmy can make a great soup. I’m a soup freak and Jimmy’s is the only place that has never disappointed me in the varieties or qualities of his soups. To my knowledge, he has never served that vile concoction known as broccoli cheese soup.

After a salad course there will be at least three entrée offerings and an outstanding dessert. An appropriately selected wine will be served with each course, and Jimmy will come out of the kitchen and comment on each selection. This is several hours of true dining at its best and exposes our little community to fine food and excellent wines at very reasonable prices.

If you happen to find yourself visiting the Opelika area, be sure to give Jimmy’s a try, you will not be disappointed. He is open for lunch every day and for dinner Tuesday through Saturday. You can find more information on Jimmy’s by visiting his website at www.jimmysopelika.com. Bon appétite! 

 

 

 

 

 

Copyright© 2010 Capital Consultants Company. All rights reserved.

 

 

 

 

Advertisements

Categories: Newsletter

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s