Breaking down sector silos
Oftentimes, what starts as one type of potential opportunity morphs into another. That was the case with a loan that Arena Investors funded for a new company founded to provide close-air-support training services to the US military. This training teaches forward air controllers how to coordinate airstrikes and guide ordinance to its targets. The US Army, Air Force, and Marine Corps employ forward air controllers to increase the accuracy of their air attacks and to reduce the possibility of friendly-fire incidents.
The new company was targeting more than $100 million in close-air-support military training contracts that were to be awarded over many years. The two individuals who created and owned the company came together to bid for these military contracts, but to satisfy the first phase of these bids, they needed to acquire equipment to be used in the training—including tandem-seat turboprop trainer aircraft and third-party sensor arrays that would be fitted to the aircraft—in a very short period of time.
In many situations similar to this one, potential borrowers have exhausted other possibilities and find themselves under immense time pressure lest they lose the possibility to accomplish their goals. For Arena, seeing what’s possible is a function of being able to combine disparate capabilities that can complement each other. (Though we are far from being superheroes, our model is more like that of the Avengers, each with a key capability, than the solo superheroes of the past.)
In this case, one of the company’s owners was a successful entrepreneur—so, someone with assets, but not with the kind of liquidity needed to quickly purchase a fleet of specialized aircraft. (The equipment needed was so specialized that even aviation-related financiers were unable to provide financing.) Arena’s Structured Finance team, with its long experience in aviation finance, was introduced to the deal, but without the government contracts in-hand, and given the specialized nature of the equipment, faced a similar dilemma.
That’s when the broader Arena team got to work. There was a need for speed, as bids for the government contracts were due to close in only two weeks. Understanding that the potential counterparty might well have access to collateral unrelated to the aviation startup, we suggested exploring such options. And, in fact, the CEO of the new company suggested a real estate holding as collateral for the aviation equipment purchase loan. Arena’s Real Estate team entered the picture, quickly completed its analysis, and underwrote a loan that was sufficient for the borrower to be able to purchase the equipment, meet the bid deadline, and ultimately secure the military contracts that would kickstart the new business.
What we provided in this case was exactly what we designed Arena to provide: not only funding, but the flexibility, creativity, analysis capability, and speed needed to deliver that funding in unusual and challenging circumstances. This deal, combining aviation and real estate expertise, is a good example of Arena’s ability to deploy our multi‐disciplinary approach and resources to serve our counterparties, and our sector expertise extends well beyond those two areas. We’re always open to high-flying investment ideas that may not fit any traditional mold—even when they don’t involve airplanes.