Case Study 8
Working Capital Intelligence
Ricosta Capital were first introduced to Pharos Marine Automatic Power Ltd (‘Pharos’) early in 2023. The business required additional working capital facilities to fulfil a strong order book. Primarily due to the export markets in which Pharos’ clients reside, their existing finance providers were no longer able to support the level of funding required.
Introduction
Pharos had been heavily impacted by Covid, primarily as they manufacture and supply products into the offshore oil & gas sectors, where orders stalled during the Covid period. Their back-order book was very strong, however in order to deliver the volumes required by their clients, additional working capital was required. Pharos’ clients are primarily in the Middle East where the appetite of funders to provide working capital facilities is limited. As a result, raising additional funding proved to be challenging.
Ricosta Capital’s initial brief was to provide additional working capital facilities to supplement those provided by the existing lender & whilst Ricosta Capital were able to obtain a credit rating enhancement for Pharos, due to general tightening in the finance markets and an uncertain economic outlook in the UK, additional fund raising was unsuccessful.
As additional funding was not available, and the existing working capital provider being unable to increase their funding limits, it was necessary for Ricosta Capital to seek an alternative working capital solution. However, due to the export markets that Pharos sell into, it became clear that there was not an alternative ‘whole debtor book’ funder who would have appetite to provide the level of funding that Pharos required, and therefore it was necessary for Ricosta Capital to propose a bespoke working capital solution.
Challenges
Initially, working with their partner Lightbulb Credit, who provided up to date financial information and effecting some simple changes, Ricosta Capital were able to obtain a credit rating enhancement for Pharos which may enable their suppliers to provide increased levels of credit terms which will have a positive impact on working capital.
Ricosta Capital proposed that an alternative working capital solution was sought from a selective invoices finance provider. Pharos provided details of their top clients which enabled Ricosta Capital to seek enhanced credit limits at a level that would support Pharos’ working capital requirement.
Ricosta Capital worked extensively with Accelerated Payments, a selective invoice finance provider and were able to demonstrate that the credit limits that could be obtained from c20% of Pharos’ clients would provide the level of working capital required.
As a result of the bespoke funding solution provided, it was not possible to fully repay the existing working capital provider in the usual way, where an incoming funder would assume the liabilities of the exiting funder with ongoing receipts controlled by an inter factor agreement.
In this regard, Ricosta Capital worked closely with Pharos in order to gain an understanding of amounts outstanding per debtor to be funded by Accelerated Payments and the level of new invoices to be raised by Pharos. To maximise the level of funding available, Ricosta Capital proposed that funds generated from new invoices funded by Accelerated Payments, where the exiting funder had issued ‘release letters’ could be directed to the exiting funder and the amounts due from individual debtors repaid, This enabled the exiting funder to issue further ‘release letters’ to Accelerated Payments which enabled additional funding via higher credit limits to be provided.
Outcomes
Ricosta Capital provided extensive executive support to Pharos, acting as a hub to implement the proposed funding solution. We worked on behalf of our client to challenge incoming and exiting funders at the highest level in order to achieve what we believed was the best possible outcome.
In Summary
“The current economic outlook is causing traditional lenders to require more security, but often their appetite to lend and qualifying criteria are tightening, meaning that businesses have to overcome more hurdles than before in order to secure essential working capital facilities. We believe that in the current environment, AP is the ideal partner for Pharos, having demonstrated their flexibility to resolve situations and provide realistic funding limits.”
— Pharos