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A Hennessey Company |
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Press Release January 3, 2005 Deal will help suppliers speed pay. Hennessey plans to step in as automakers end programs Huntington Woods, Mich. Hennessey Capital Solutions has closed a $50 million deal with GE Commercial Finance to give auto suppliers accelerated payments on receivables. Huntington Woods-based Hennessey Capital Solutions developed a receivables security system earlier this year to help suppliers stung by the end of the "fast-pay" program at Ford Motor Co. and Chrysler Group. General Motors Corp. said it will end its fast pay program by year-end. The credit line from GE Commercial Finance will allow Hennessey Capital Solutions to roll out its program to more suppliers. Hennessey Capital Solutions, a part of the financial group owned by former supplier executive Frank Hennessey, has run the program for nine months. The end of the fast-pay program created a sudden demand. "We just needed the funding. That really was the bottleneck," said Bob Sabourin, executive vice president of Hennessey Capital Solutions. "We're really excited about it." The Hennessey Capital Solutions plan aims to serve suppliers that aren't large enough to sell receivables to the capital markets at low interest rates through their own financial shell companies, known as special purpose vehicles. Corporations typically need to have about $500million in sales to set up a special purpose vehicle to securitize their receivables. On the surface, the Hennessey program looks somewhat like a factoring program, but it's different, Sabourin said. Factors purchase receivables at a discount, but only advance up to 85 percent of the discounted payment to the selling company up front. Hennessey pays the supplier the entire discounted payment right away, Sabourin said. Factors require liens and sometimes personal guarantees. Hennessey requires suppliers' lenders to consent to the sale of receivables, but doesn't impose liens or require personal guarantees of payment. Additionally, factors fees depend upon how quickly the buyer pays. Hennessey is paid the agreed upon percentage of the receivables no matter how quickly the buyer pays. GE Capital, the parent company for GE Commercial Finance, had financed the fast-pay program since 1999. Under that program, a supplier could receive a lesser payment on an invoice immediately instead of going through the normal 60-day billing cycle. That helped cash flow and some suppliers grew dependent on it. But the U.S. Securities and Exchange Commission ruled that companies that guarantee those programs - such as the automakers - must record them as debt, since it is, essentially, a loan. That's why automakers rethought the program. Hennessey Capital Solutions' program is different from the fast-pay program because it doesn't require the automakers, or any other buyers, to guarantee the loans. Hennessey buys the receivables from the supplier at a discount, using money lent by GE Commercial Finance's auto finance division. Then Hennessey collects from the purchaser. Unlike a factoring firm, the fee to the supplier isn't dependent upon how quickly the buyer pays. Also, the supplier, together with its bank lender, may pick and choose which receivables to sell to Hennessey, Sabourin said. Suppliers can sell a percentage of a particular invoice to Hennessey. Hennessey then pays thatpercentage, charges a finance fee, and owns the receivable. Hennessey is later paid 100 percent of that receivable. Sabourin said the deal with GE is structured to use bank syndicates to expand the fund. "It can move into the hundreds of millions," he said. He said Hennessey has started working with Ford (NYSE: F), GM (NYSE: GM) and Wal-Mart Stores Inc. (NYSE: WMT) suppliers.
Contact: Sherry Tompkins |