Jones Electrical Case

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MBA770 Corporate Finance Case “Jones Electrical Distribution” Description Jones Electrical Distribution (“JED”), which sells electrical components and tools to general contractors and electricians, is experiencing rapid growth in a highly-fragmented, highly competitive industry and despite profits, experiencing a cash shortfall, resulting in increased borrowing from Metropolitan Bank (the “Bank”) to $250K, the max loan amount the Bank will make to any one client. JED has been able to remain within this amount through 2006, relying heavily on trade credit from suppliers. As a result, Nelson Jones, owner and president, is seeking a new banking relationship. Nelson’s friend introduced him to a new bank where he felt he might…show more content…
Borrowing limited to available borrowing base of margined A/R and Inventory, will pay an unused fee of 0.25%, annually, on the portion of the revolver not used. This allows the flexibility to grow into a larger revolver continuing to support growth. Expected Customary Covenants – JED should expect that the note to the former shareholder will be fully subordinated to the Bank’s senior revolver facility. Should also expect that he will sign an unlimited/unconditional personal guarantee. No Need for Growth Equity – It is not believed that JED needs to consider growth equity, resulting in dilution and high cost of capital. The growth can be supported by traditional bank financing, as suggested above. Appendix |Balance Sheet | | | | | | |Inventory |$243 | |$278 | |$379 | | / COGS |$1,304 | |$1,535 | |$1,818
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