CASE STUDY – BARR SYSTEMS, INC.

As we have always disclosed, The Rama Fund, LLC (the “Fund”) has the right to a first look at all of Athas Capital Group, Inc.’s (“Athas”) production. If a deal does not fit within the Fund’s investment parameters or if the Fund is fully invested, then we will offer the investment opportunity to our network of private investors as part of our Separately Managed Account (“SMA”) program. In this case study we outline what we believe is one of the best, if not the best, deal that we have ever funded. Unfortunately for SMA investors, the only way to own a piece of this extremely attractive deal is through membership interests in the Fund. Fortunately for SMA investors (and new investors), the Fund is still accepting new subscriptions.

Loan Metrics
Loan-to-value ratio:
• Loan amount:               
• Value of collateral:       
• Lien position:               
• Other debt:                 
8.54%
$540,000
$6,323,000
1st lien
$0
• Guarantor’s FICO:                         
• Full recourse/personal guarantee:   
• Guarantor’s net worth:                    
• Note rate:                                      
• Term of loan:                 

761
Yes
$10.9M
11.99%
24 months

Executive Summary
Our borrower, Barr Systems, Inc. (“Barr”), has owned this building since 1993 and built the property using its own funds. Barr wanted a very low leveraged loan so that it could inject some working capital into its business. The collateral is a pristine office building on 10 acres with another sister lot - also 10 acres - next door that is fully entitled and ready for development.

The Borrower / Narrative
Barr is in the print management and document delivery software business. Up until May 2006, its primary business operations were the development, sale and support of a legacy software application that supported high volume printing. At the same time, the company was investing in a new R&D software development project as changing technology was making the legacy software less competitive in the market and there were declining sales.

In May 2006, Barr sold 60% of its legacy business to a joint venture partner who was responsible for revamping the legacy application while Barr shifted all of its focus to the new R&D software project. In November 2009, the new R&D project was completed. The elimination of the software developers and the administrative staff in accounting, human resources and information services significantly reduced the operating costs of the company. Furthermore, the joint venture partner has proven successful in revamping the legacy software application, which Barr still owns 40% of.

Why Conventional Financing Was Not an Option
Barr reported a negative Adjusted Gross Income (“AGI”) on its 2008 and 2009 taxes in the amounts of ($1,730,462) and ($2,035,322), respectively. Also, 100% of our loan proceeds were used as cash-out. In today’s environment, banks prefer to finance purchase transactions or refinance transactions.

How We “Won” the Deal
We believe we were exclusively retained to procure financing for Barr for the following reasons:

  • We are willing to fund transactions where the use of proceeds is a cash-out
  • Unlike traditional banks, we do not look primarily at the borrower’s Debt to Income (“DTI”) ratio, but rather we focus on the property’s Debt Service Coverage (“DSCR”) ratio. Because of this, we were able to get comfortable with this transaction even though the borrower had negative AGI.
  • Beyond the property’s DSCR, we carefully scrutinize a property’s value and one of our principal underwriting metrics is the Loan to Value (LTV) ratio which is a measure of the equity cushion protecting our invested capital.
  • We were able to move quickly and processed this transaction from the execution of our LOI to closing in about one month.

Exit Strategy for our Bridge Loan
Our loan proceeds were used by Barr to fund the marketing and development expenses related to their new software application. Their new product has received a strong reception in the marketplace and the company’s financial projections forecast profitability within 24 months of our loan funding. The company expects to be able to repay our loan through the cash flows it derives from its operations. Additional potential avenues for the exit of our loan are (1) a refinance via conventional sources once the company has demonstrated a positive financial trend, or (2) a sale of part or all the of the subject property.

The Collateral

  • Located in Gainesville, FL
  • 4 office buildings with 53,103 heated area square feet, situated on 10 acres
    • 50% of total square footage leased by Barr or its joint venture partner
    • 38% leased to third parties
    • 12% vacancy
  • 10 acres adjacent to the improved real property, fully entitled and ready for development

Pictures of the Subject Property

Rama Capital Partners CFL# 603 H047
Rama Fund CFL# 603 H064
Rama Capital Advisors DRE# 018221572
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