Tenor Capital specializes in Debt Placement, ESOP Leveraged Buyouts and has represented both buyers, sellers, and lenders in utilizing the ESOP as a financing tool.
Debt Placement, also known as ESOP Leverage or Leveraged Buyout, occurs when a company uses an ESOP as a form of financing “debt.” The company will often borrow money either from a bank, mezzanine lender, selling stockholder, or other source of credit, and will then lend this money to the ESOP Trust. The ESOP Trust will use the proceeds from the loan to purchase stock from either the company or an existing stockholder- use of debt to acquire shares is a leveraged ESOP.
In a leveraged ESOP, the ESOP or its corporate sponsor borrows money from a bank or other qualified lender. The company usually gives the lender a guarantee that it will make contributions to the trust which enable the trust to amortize the loan on schedule; or, if the lender prefers, the company may borrow directly and make a loan back to the ESOP. If the leveraging is meant to provide new capital for expansion or capital improvements, the company will use the cash to buy new shares of stock in the company. If the leveraging is being used to buy out the stock of a retiring owner, the ESOP will acquire those existing shares. If the leveraging is being used to divest a division, the ESOP will buy the shares of a newly created shell company, which will then purchase the division and its assets. ESOP financing can also be used to make acquisitions, buy back publicly-traded stock, or for any other corporate purpose.