You do not need legal advisers to tell you that the recession means bankers are revisiting their loan books and looking again at the quality of their security. If you have good intellectual property (IP) assets that help to deliver your business objectives and a clear management strategy designed to ensure that they stay that way, you should be in strong position to argue for those assets to be taken into account in assessing the value of the collateral supporting the facilities.
Is your bank comfortable with the value of its current security?
Many businesses are finding that their banks are reviewing their security packages, both in relation to valuation and enforceability. The value of real property has taken a hit and the discount applied to your trading income may have gone up so the bank's cover may be looking a bit thin. Can you do anything to improve this before your cost of borrowing shoots up or you risk having your available funds reduced?
Which assets does your bank's debenture bite on?
One option is to look at your IP assets. If they are already charged to the bank, are they valued realistically or just thrown in at no or little value as a consequence of a catch-all clause in the standard debenture? If they are not covered by the bank's security, do you have a potentially valuable asset that you could offer to the bank as collateral?
What opportunities are there for improving the bank's level of comfort?
If your IP assets aren't secured – or aren't attributed a realistic value – how can you go about persuading the bank that they are worth considering?
A coherent IP management strategy that identifies the assets clearly, is closely linked in with business objectives and for which a Board member – such as a Chief Technology Officer - has functional responsibility for delivering, will give a base for persuading the bank that there is a real asset that may be worth taking into account. Your management strategy will be key to maximising the valuation that the bank will require. We work closely with specialist valuation experts to help you design an appropriate strategy to enable valuers to see the full value of your IP assets.
Or should you be looking elsewhere for funds?
If you have an unsecured revenue stream, such as royalties, then there are possibilities for setting up structures, such as securitisation, that can be used to raise finance against this income. Although traditional banks are unlikely to lend solely against IP in the current climate, other investors may well be available.
Intra-group royalties are well worth looking at in this context, even if you have no third party royalty revenues. There are opportunities here for developing an appropriate transfer pricing policy, identifying possible tax savings and rationalising the ownership of your IP portfolio as well as creating a suitable vehicle for a variety of financing options.
- Subsequent alerts will consider the following topics:
- Accounting/corporate governance compliance
- Improve the quality of your existing security – lenders
- Ways of raising new funds
- Improving the company's performance
- Protecting your IP if your licensee goes belly-up
- Management for the longer term
- Reduce your tax bill – make tax savings
- Transfer pricing
- Manage your business better – identify under-utilised assets; focus investment on key business objectives; create greater confidence in management of the company
This analysis was written in conjunction with Serena Tierney, consultant, serenatierney@pandionIP.com.