Case Study: Fraikin SA
Comparison of Three Financing Options
a. Background Analysis Current Situation Founded in 1994, Fraikin group, the largest French truck rental operation, took up 30% of the market share by 2004. The core operation business of Fraikin is to provide its clients with customized trucks and commercial vehicles, primarily under long-term operating lease contracts. During the period from 1999 to 2002, the number of the leased trucks was continuously increasing (from 59,600 to 74,300), which indicated a stable growth of the company and a possibly booming market in the future. However, as a capital-incentive company, only continuous investment on fleet maintenance and expansion can retain Fraikin’s leader position in the
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It brought benefit for Fraikin since it was current facing cash flow shortage. Meanwhile, the monitor by these asset-backed lenders such as accountreceivable valuation and collection services can expedite cash flow and support corporate cash requirements leading to increased profitability and working capital. However, if the company didn’t perform as they expected, interest and principal cannot be afforded, the investors have the rights to take over the backed assets. 10,000 fleets were involved in this financing option, which took up 1/7 of the total fleet assets. If they were taken away, it may cause ongoing concerns or at least lose its industrial leader place. Quantitative Analysis The loan size depended on a loan-to-book capital ratio of 70%. The current loan size can be calculated as in the table 2. The net book value (NBV) of remaining subsidiaries is assumed as 1/4 of the NBV of Locamion and Locatime since Locamion and Locatime together took up 80% of the whole fleet. Therefore, the NBV of other subsidiaries would be 134.75(377.3*1/4), and the amount of the initial asset-backed loan would be 70% of the whole NBV, that is, 471.63 million.
Annual additional non-amortizable loans were issued equal to 70% of future increases in the net book value of Fraikin’s fleet. Eurazeo set the expected growth rate of the fleet as 6%, thus we can estimate future NBV and compute each year’s cash flow. Considering the worry of the CEO about downgrading and their