NEW YORK-Two Denver companies joined forces this year as Liberty Telecom L.L.C., which they formed to fill a void caused by the paucity of financial institutions offering capital lease financing to telecommunications companies.
According to the agreement, Sokoloff & Co., a boutique investment bank specializing in telecommunications finance, has become the exclusive agent in that business sector for Liberty Lease Finance Inc., an underwriter of capital leases.
“Venture leases” is how Peter Sokoloff describes the kind of financing Liberty Telecom seeks to provide. That is to say, they are capital leases for new telecommunications ventures that might find other kinds of financing unavailable or unaffordable.
“Many of the companies we will consider are at or below cash flow break-even,” said Janet Gibas, president of Liberty Lease Finance.
“They’ve got strong assets, able management and a solid business plan. We can finance not only equipment but also can often provide working capital to market and install that equipment.”
Liberty Telecom is looking to provide capital leases of $1 million to $25 million to small- and mid-size telecommunications companies that are working to develop a customer base. As a general rule, capital leases are those in which the lessee acquires essentially all of the economic benefits and risks of the leased property.
“For example, it could be a business start-up that couldn’t qualify for bank financing, yet has a viable plan with a good manufacturer involved and good clients lined up,” Sokoloff said.
“Criteria would include a predictable source of income, like a contract in place for services, or a carrier that has 50,000 paging customers and wants to grow.”
Tower construction companies that seek to build and lease their facilities to telecommunications carriers are other good candidates for Liberty Telecom’s venture leases, Sokoloff said. Likewise for specialized mobile radio operators and resellers of wireless telecommunications services.
This type of financing also might be well-suited for manufacturers that have purchase contracts lined up from customers which are themselves looking for loans to finance their purchases, Sokoloff said.
However, software developers “would be trickier to finance” this way because of the high degree of technology risk involved. Unless those types of high-tech companies have “significant contracts,” their mostly likely venue for finance would be venture capital, he said.
