Inter-Creditor Agreement Helped Closed Acquisition – ICA Explains

Our knowledge of commercial finance & agriculture really paid off for a cattle auction house acquisition due to a creative inter-creditor agreement. No bull about it, we know how to close deals! Here’s the scoop…

We financed the acquisition of a cattle auction house in Missouri for a little over $2 million between the real estate and business. However, there was more than meets the eye here. Upon further due diligence of the scenario, we figured out one critical point that this deal would hinge on.

The auctions are scheduled every Thursday, but the sellers of all the cattle get paid the next day. The auction house then has to wait another one to two weeks in order to get paid by all the buyers. This means that at any given time the owners of the auction would have to float one to two weeks of invoices in order to stay in business. Hence, the individual that was going to purchase this operation would have to have a minimum credit line of $500,000 over and above the loan for the acquisition just to operate.

Due to our many years of experience in agriculture, we were able to work with a local community bank that was well-versed in cattle in Missouri. What we did was subordinate our new loan for the acquisition to the main bank account, which would be held at this community bank providing the line of credit.

We did this through what they call an inter-creditor agreement or memo in which the operating account would be carved out of the UCC filing of the business that secured our lien. Because of our many years of knowledge in agriculture, we were able to navigate this inter-creditor agreement procedure to make sure all parties could secure the collateral they needed so the acquisition could be consummated.

Sometimes deals seem pretty simple on the surface but then when you peel away the layers they are more complicated and require a higher skill set. We can bring this higher skill set to you and your clients as well!