In an effort to illustrate some of the potential uses and benefits of our financial technology, we have compared the costs of traditional financing to the more cost effective Collateralized Variable Demand Note (CVRDN) financing instrument. Although our Case Study utilizes the CVRDN as a source of debt capital for application within the real estate industry, the CVRDN can be effectively utilized in many other commercial business areas such as:

It is important to note that the CVRDN finance structure, in its most pure and unaltered state, is designed to be an Interest Only form of finance at a rate of interest well below conventional finance rates. Although conventional financing methods typically include an amortizing schedule of principal over a predetermined life, this most likely will not be the case with CVRDN financing. The Issuer of a CVRDN, however, can self-amortize the loan at no additional cost through optional additional principal payments to the trustee, however, for the sake of simplicity, we have purposely ignored this option in our illustration.

Example:

Delta Realty, LLC (DR) has entered into a license with United Financial Technologies, granting BA the right to issue CVRDNs in the capital market in support of its real estate investments or projects. DR has nearly $70 million worth of real estate with a cost basis of $60 million and bank debt of $50 million. DR is currently paying 250 basis points over 30-Day LIBOR (total of 6.06%) and is amortizing the note over a fifteen-year period. DR would like to reduce their overall monthly debt service and increase their monthly cash flow. DR plans on reinvesting the surplus cash generated under the CVRDN structure into several real estate development projects that are expected to have an overall Internal Rate of Return of 10% over a ten-year period. DR would like to compare the costs involved with utilizing a CVRDN instrument (both one-time and annually) against their current traditional debt instrument.

Analysis:

Highlights of Analysis

• Since the CVRDN is designed to be an interest-only instrument, the total interest paid over the borrowing period will be slightly higher for the CVRDN vs. Traditional financing. This will result even though the All-In borrowing rate for the CVRDN is lower than Traditional financing.
• The additional cash flow generated by the CVRDN instrument will more than offset the additional cost over the term of the note. The CVRDN accomplishes this by having a lower interest rate and no requirement to pay principal on a monthly basis.
• If we assume a prudent reinvestment strategy of the additional monthly cash flow, the Licensee in our example will experience an overall increase in cash flow of nearly $100 million dollars using a CVRDN when compared to Traditional financing methods.
• Alternatively, the Licensee can choose to prepay the note principal with the additional cash flow resulting from a lower interest rate and reduce the amortization period from fifteen to twelve years with no prepayment penalty. This option will result in an overall interest savings of $14.5 million over the term of the note.

Summary:

The CVRDN financial technology, when compared to traditional amortizing loans, can produce a substantial increase in a company’s monthly cash flow position. Additionally, when the increase in available cash is coupled with a prudent investment strategy, the investment returns will offset any decrease in overall cash from interest and other related expenses. The use of United Financial Technologies’ CVRDN debt structure (a new proprietary technology protectable under the laws of trade secret) can be initiated and maintained at a low cost that returns a substantial increase in a Licensee’s overall cash flow. As demonstrated, through the use of a CVRDN, a Licensee that prudently leverages the excess cash flow can also benefit from a tremendous increase in their overall return on assets.