ESOP Financing

Hypertherm Receives Financing for Transition to a 100 Percent Employee Owned Company

Hypertherm, Inc. makes advanced metal cutting solutions for use in a variety of industries, including shipbuilding, manufacturing and automotive repair. The Hanover, New Hampshire-based company is proud of the role its 1,300-plus Associates have played in its success, a pride it reinforced in 2001 when it created an employee stock ownership plan to hold a minority stake in the company’s stock.

By 2013, the Company’s founder and majority owner desired to transition the Company to a 100% ESOP ownership for the purposes of succession planning.  To help secure the necessary financing, Hypertherm’s ESOP and financial consultant, Verit Advisors, introduced the Company to Prudential Capital Group. Verit and Prudential Capital Group had worked together in the past successfully structuring and financing other ESOP related transactions.

After assessing Hypertherm’s needs and financial profile, Prudential Capital Group was able to structure a financing package that included a senior secured term loan as well as a Pru-Shelf facility, under which Hypertherm could issue additional debt as it deemed prudent. Of importance to Hypertherm, Prudential Capital Group also crafted an amortization structure for the deal that fit the company’s cash-flow profile and existing debt-maturity schedule. One of the key challenges was finding the right combination of senior debt and subordinated seller notes that would allow for the full buyout of the founder’s majority stake while not over-levering the Company to the point of financial risk, or limiting the Company’s ability to grow in the future.  Another challenge was the structuring of the debt so as to not subordinate the claims of the Hypertherm Associates while retaining an investment grade credit rating and associated pricing. Prudential Capital Group’s financing package was augmented by shorter-tenor financing from the company’s bank, which provided a senior secured revolver and an additional term loan. A strong working relationship between the lenders allowed for a constructive negotiation with an outcome satisfactory to all parties involved, most importantly Hypertherm. The transaction closed in December 2013.

To finance a 100% ESOP conversion that would support its long-term strategy, Hypertherm chose Prudential Capital Group for its demonstrated expertise in ESOP transactions, the flexible structuring of its financing package, and because of the relationship-focused approach that met Hypertherm’s financing needs.