Strategies for Debt Refinancing in the Venture Debt Landscape

1. Introduction to Venture Debt and Its Role in Business Growth

Venture debt stands as a unique financial instrument in the world of start-ups and growth-stage companies, offering a complementary solution to equity financing. Unlike traditional bank loans, venture debt is tailored to the needs of high-growth companies that may not yet be profitable but have promising prospects and solid backing from venture capitalists. This form of debt financing provides a buffer of capital that can be used to extend a company's runway, finance growth initiatives, or bridge gaps between equity rounds without diluting ownership stakes. As such, it plays a pivotal role in the strategic financial planning of a business, allowing founders to retain control while still fueling their company's growth trajectory.

From the perspective of a venture capitalist, venture debt is a way to reduce the risk of additional equity dilution in portfolio companies. It's seen as a strategic tool to support companies with proven business models that are on the cusp of reaching profitability or a significant growth milestone. For entrepreneurs, venture debt offers a way to finance growth without giving up more equity, preserving ownership and future value for founders and early investors. Meanwhile, lenders view venture debt as an opportunity to participate in the upside of high-growth companies while earning interest income and sometimes obtaining warrants, which can convert into equity at a later date.

Here are some key points that delve deeper into the role of venture debt in business growth:

1. Flexibility in Use of Funds: Venture debt can be used for a variety of purposes, such as expanding operations, entering new markets, or accelerating product development. For example, a biotech start-up might use venture debt to fund research and development activities that are critical to advancing its drug pipeline.

2. Minimizing Dilution: By opting for debt rather than additional equity financing, companies can avoid diluting the ownership stakes of existing shareholders. This is particularly beneficial for founders who want to maintain control over their company's direction and decision-making.

3. Strategic Timing: Companies often use venture debt strategically, such as after raising an equity round when their valuation is higher. This timing allows them to secure debt on more favorable terms. A case in point is a tech start-up that secures venture debt after a series B funding round to finance the scaling of its operations.

4. Covenant Structure: Venture debt agreements typically come with covenants, but these are often less restrictive than those associated with traditional bank loans. This gives companies more operational freedom while still providing lenders with some level of protection.

5. Cost of Capital: While venture debt can be more expensive than traditional debt due to the higher risk profile of the borrowers, it is generally cheaper than equity when considering the cost of capital. This makes it an attractive option for companies looking to optimize their capital structure.

6. Warrant Coverage: Lenders may require warrants as part of the venture debt agreement, which gives them the right to purchase equity at a predetermined price. This aligns the interests of the lender with the company's success and provides an additional upside to the lender.

7. Success Stories: Many successful companies have utilized venture debt as part of their growth strategy. For instance, Dropbox and Tesla both took on venture debt during their early stages to fuel growth without further diluting equity.

Venture debt is a powerful tool for businesses in the growth phase, offering a non-dilutive way to finance strategic initiatives. Its role in business growth is multifaceted, providing not just capital, but also strategic flexibility and alignment of interests between lenders and companies. As the venture debt landscape continues to evolve, it remains a critical component of the financing mix for innovative companies seeking to disrupt industries and scale rapidly.

2. Assessing the Right Time for Debt Refinancing

Assessing the right time for debt refinancing is a critical decision for any business, particularly in the venture debt landscape where the stakes are high and the margins for error are slim. This decision is not just about finding a lower interest rate; it's about understanding the financial health of your company, the current economic climate, and the terms of your existing debt. It requires a careful analysis of various factors, including cash flow projections, interest rate trends, and the potential costs associated with refinancing. From the perspective of a CFO, the timing of debt refinancing can be the difference between unlocking value and financial flexibility or incurring unnecessary costs and complexities.

From an investor's point of view, the strategic timing of refinancing can significantly impact the return on investment. Investors are keen on ensuring that the companies they have a stake in are managing their debt efficiently, and refinancing at the right moment can enhance the company's valuation. On the other hand, entrepreneurs must weigh the benefits of refinancing against the potential disruption it may cause to their operations and growth plans.

Here are some in-depth insights into assessing the right time for debt refinancing:

1. interest Rate environment: Monitor the market for interest rate trends. If rates are expected to rise, locking in a lower rate now could save substantial money over time. For example, if a company has a loan at a 7% interest rate and the market rates drop to 5%, refinancing could lead to significant savings.

2. business Growth trajectory: Evaluate if your business is at a point where it has stable or increasing cash flows. A strong financial position can lead to more favorable refinancing terms. Consider a tech startup that has just secured a large contract, increasing its monthly revenue significantly—this would be an opportune time to refinance.

3. Debt Maturity: If your current debt is nearing maturity, it's an ideal time to explore refinancing options. Refinancing before maturity can avoid the rush and potential unfavorable terms that come with last-minute negotiations.

4. Covenants and Terms: Analyze the covenants of your existing debt. If they are too restrictive and your business has grown or changed since the debt was incurred, refinancing could provide more flexibility. A company might have taken on debt with covenants that limit capital expenditures, but to fuel growth, it needs to invest in new equipment, making refinancing necessary.

5. Cost of Refinancing: Always factor in the costs associated with refinancing, such as prepayment penalties, transaction fees, and legal costs. These should be weighed against the potential savings from a new loan. For instance, if the prepayment penalty is 2% of the loan amount, but refinancing will save 3% per annum on interest, it may be worthwhile.

6. Economic Indicators: Keep an eye on economic indicators such as inflation rates, GDP growth, and policy changes that can affect lending rates. A stable or growing economy can be a good sign to refinance, as lenders are more likely to offer competitive rates.

7. Lender Relationships: Strong relationships with lenders can lead to better refinancing terms. If you have a good track record with a lender, they may offer you a deal that's not available on the open market.

The right time for debt refinancing is when it aligns with your company's financial strategy and market conditions. It's a complex decision that requires a multi-faceted approach, considering both internal financial metrics and external economic factors. By keeping these insights in mind, businesses can make informed decisions that bolster their financial standing and support their long-term objectives.

3. Evaluating Your Current Debt Structure

Evaluating your current debt structure is a critical step in the process of debt refinancing, especially within the venture debt landscape. This evaluation is not just about understanding how much you owe or to whom, but it's about gaining a comprehensive view of the terms, conditions, and costs associated with your existing debts. It involves a thorough analysis of interest rates, maturity profiles, covenants, and repayment schedules. From the perspective of a CFO, this evaluation helps in identifying opportunities to reduce costs or to align debt obligations more closely with cash flow projections. For entrepreneurs, it's about assessing how the current debt structure affects the company's ability to raise additional capital or pursue growth opportunities. Investors, on the other hand, look at the debt structure to gauge the financial health and risk profile of the company.

Here are some in-depth insights into evaluating your current debt structure:

1. interest Rate analysis: Start by comparing the interest rates on your current debts with the market rates. If your rates are significantly higher, it could be an indication that refinancing could lead to substantial savings. For example, if you have a venture loan at 12% interest but the current market rate is 8%, refinancing could reduce your interest payments considerably.

2. Maturity Profile Assessment: Look at when your debts are due. If you have multiple debts maturing around the same time, it could create a financial strain on your business. Staggering the maturities through refinancing can provide more breathing room. Consider a company with several loans maturing in the same quarter, which could be refinanced into a single loan with a longer-term.

3. Covenant Scrutiny: Covenants can restrict your company's operations. Ensure that you understand all the covenants attached to your debts and consider whether they are too restrictive. Refinancing can sometimes help in negotiating more favorable terms. For instance, a debt covenant might limit the amount of additional debt a company can take on, which could be renegotiated during the refinancing process.

4. Repayment Schedule Optimization: Your current repayment schedule may not align with your cash flow, especially if your business is seasonal or has irregular income. Refinancing can help adjust the repayment schedule to match your cash flow patterns, thus avoiding cash crunches. A retail business, for example, might benefit from lower repayments during off-peak seasons.

5. Collateral Reevaluation: Assess the assets you have pledged as collateral. If the value of the collateral has changed or if you have additional assets, you might be able to secure better terms. A company that initially offered inventory as collateral might now be able to use a newly acquired property instead, potentially lowering the cost of debt.

6. cost-Benefit analysis: Finally, weigh the costs of refinancing against the potential benefits. Refinancing usually involves fees and possibly penalties for early repayment. Make sure that the long-term savings justify these upfront costs. For example, the break-even point where the savings from a lower interest rate outweigh the refinancing costs should be calculated and considered.

Evaluating your current debt structure is a multifaceted process that requires looking at your debts from various angles. By doing so, you can make informed decisions about whether refinancing is the right strategy for your business. Remember, the goal is not just to reduce debt but to optimize it in a way that supports your company's long-term financial strategy.

4. Trends and Opportunities

Venture debt refinancing is a nuanced strategy that hinges on a deep understanding of the market's evolving trends and opportunities. In the current financial landscape, where traditional lending criteria have tightened and interest rates fluctuate, venture debt presents a viable alternative for startups and growth-stage companies seeking capital without diluting equity. However, to navigate this terrain effectively, one must be attuned to the market dynamics that influence venture debt availability and terms.

From the perspective of lenders, the market's appetite for risk, economic indicators, and the performance of various industry sectors are pivotal in shaping their approach to venture debt. Lenders are increasingly data-driven, utilizing advanced analytics to assess risk and determine the viability of a venture debt deal. On the other hand, borrowers must stay informed about the competitive landscape, as well as the regulatory environment that could impact their ability to secure and service debt.

1. Interest Rate Trends: The cost of venture debt is significantly influenced by prevailing interest rates. For instance, in a low-interest-rate environment, venture debt becomes more attractive as it offers capital at a lower cost compared to equity financing. Conversely, when rates rise, the cost of servicing debt increases, which can impact a company's cash flow and valuation.

2. Regulatory Changes: Changes in regulations can either open up new opportunities or present hurdles. For example, the introduction of favorable tax incentives for investors in certain sectors can lead to an influx of venture debt funds, while stringent banking regulations might tighten the credit available to startups.

3. Technological Advancements: The emergence of fintech and blockchain technologies has revolutionized the way venture debt is managed and transacted. These innovations have introduced new efficiencies and transparency, making it easier for companies to manage their debt obligations and for lenders to monitor the performance of their portfolios.

4. Economic Cycles: Understanding the cyclical nature of the economy is crucial. During an economic downturn, venture debt can provide a lifeline to companies that may not have access to other forms of financing. Conversely, in a booming economy, the abundance of capital can lead to more competitive terms for borrowers.

5. Sector-Specific Dynamics: Certain sectors may experience rapid growth due to technological breakthroughs or shifts in consumer behavior. For instance, the healthcare sector has seen a surge in venture debt interest due to the rapid development of digital health solutions and medical devices.

6. Global Events: Unforeseen global events, such as the COVID-19 pandemic, can drastically alter market conditions. Companies that were able to pivot and adapt to the changing landscape, like those in e-commerce or remote work technologies, found themselves in a position to leverage venture debt for growth amidst uncertainty.

By examining these factors, companies can better position themselves to take advantage of the opportunities presented by venture debt. For example, a biotech startup might leverage low-interest rates to refinance existing debt, freeing up capital for research and development. Alternatively, a fintech company might use venture debt to expand its operations globally, capitalizing on regulatory changes that favor its business model.

Understanding the market is not just about keeping abreast of current trends; it's about anticipating future shifts and being prepared to pivot strategies accordingly. It's a complex, ever-changing puzzle that requires vigilance, foresight, and a willingness to adapt to ensure the successful navigation of the venture debt landscape.

5. Aligning Refinancing with Business Goals

strategic planning in the context of refinancing is a critical exercise that involves a meticulous evaluation of current debts, understanding the terms of new financing options, and aligning them with the overarching business objectives. This alignment is essential for ensuring that the refinancing efforts support the company's growth trajectory, liquidity needs, and risk management strategies. It's not merely about securing lower interest rates or more favorable terms; it's about crafting a financial structure that propels the business forward, enabling it to seize opportunities and mitigate potential threats. From the perspective of a CFO, this might involve stress-testing financial models against various market scenarios to ensure resilience. For a startup founder, it might mean negotiating covenants that allow for greater operational flexibility. Investors, on the other hand, would be keen on how refinancing impacts the company's valuation and their return on investment.

Here are some in-depth insights into aligning refinancing with business goals:

1. assessment of Financial health: Before considering refinancing, it's crucial to conduct a thorough review of the company's financial statements. This includes analyzing cash flow patterns, debt-to-equity ratios, and EBITDA margins. For example, a company with strong, consistent cash flows might opt for a bullet loan, where the principal is paid at maturity, to free up cash for immediate growth initiatives.

2. Understanding Debt Structures: Different types of debt instruments have varied implications on a company's balance sheet. Convertible notes, for instance, can be an attractive option for startups as they initially behave like debt and later convert into equity, thus potentially minimizing dilution if the company's valuation increases.

3. Market Timing: The decision to refinance should factor in the prevailing economic conditions and interest rate trends. A savvy business might take advantage of a low-interest-rate environment to lock in long-term debt at favorable rates, as seen when a tech firm refinanced its short-term high-interest debt with longer-term bonds amidst a market downturn.

4. alignment with Strategic initiatives: Refinancing should be timed and structured to support key business initiatives. For instance, if a company plans to expand into new markets, it may seek to refinance existing debt with a facility that provides additional capital for this expansion.

5. Negotiation of Terms: The terms of the new debt should reflect the company's strategic priorities. This could involve negotiating for more lenient covenants, such as those allowing for higher levels of investment in R&D, which was the case for a biotech firm that refinanced to fund its pipeline of innovative drugs.

6. stakeholder communication: Effective communication with stakeholders, including lenders, investors, and employees, is vital during the refinancing process. Transparency about the reasons for refinancing and how it aligns with business goals can foster trust and support.

7. Risk Management: Refinancing offers an opportunity to reevaluate and manage risks associated with the company's debt profile. For example, a company might use refinancing to switch from variable-rate debt to fixed-rate debt to mitigate the risk of rising interest rates.

By considering these factors, companies can ensure that their refinancing strategy is not only a financial maneuver but a strategic move that supports their long-term vision and operational goals. The key is to approach refinancing as a component of the broader strategic plan, rather than an isolated financial transaction.

6. Negotiation Tactics with Lenders

Negotiating with lenders is a nuanced art that requires a blend of psychological insight, financial acumen, and strategic foresight. When embarking on the path of debt refinancing, it's crucial to approach lenders with a well-crafted plan that demonstrates your understanding of the venture debt landscape and your commitment to a mutually beneficial agreement. The key is to strike a balance between assertiveness and cooperation, ensuring that you convey your needs clearly while remaining open to the lender's perspective. This involves a deep dive into the lender's interests, potential pain points, and the flexibility within their policies. By doing so, you can tailor your negotiation strategy to align with their priorities, increasing the likelihood of a favorable outcome.

From the lender's viewpoint, the primary concern is risk mitigation. They want to ensure that the loan will be repaid on time and that the terms protect their interests. On the other hand, borrowers seek to minimize costs and secure terms that support their financial stability and growth prospects. Here are some in-depth tactics that can be employed during these negotiations:

1. Research and Preparation: Before entering negotiations, gather comprehensive data about your business's financial health, market trends, and the lender's history with similar deals. This information will arm you with the facts needed to make compelling arguments for better terms.

2. clear Communication of business Value: Articulate the strengths and potential of your business. Use examples such as a recent surge in sales after a successful marketing campaign or a strategic partnership that promises future growth to illustrate your point.

3. Flexibility in Terms: Offer examples of alternative terms that could work for both parties. For instance, if a lender is hesitant to lower the interest rate, propose a longer amortization period to reduce monthly payments, or suggest performance-based covenants that could trigger rate reductions.

4. Understanding the Lender's Constraints: Recognize that lenders operate within regulatory frameworks and have their own risk assessments. Discuss these openly to find common ground. For example, if a lender cannot budge on interest rates due to policy, explore options like fee waivers or grace periods.

5. building a relationship: Approach the negotiation as an opportunity to build a long-term relationship with the lender. share success stories of past loans where you've maintained a stellar repayment record, emphasizing reliability and trustworthiness.

6. Professional Representation: Sometimes, having a financial advisor or attorney present can lend credibility to your negotiation. They can cite precedents where lenders have accommodated similar requests, adding weight to your proposals.

7. Leveraging Competition: If you have offers from other lenders, use them judiciously to negotiate better terms. Present these offers as evidence that the market values your business highly, but do so without alienating the lender you're negotiating with.

8. Creative Solutions: Propose innovative structures like revenue-based repayments where the loan repayment scales with your revenue, providing security to the lender while offering you flexibility during leaner periods.

Negotiation with lenders is a strategic process that benefits from a multifaceted approach. By understanding the lender's perspective, communicating your business's value effectively, and being open to creative solutions, you can navigate the venture debt landscape with confidence and secure terms that support your company's growth trajectory. Remember, the goal is not just to win better terms but to foster a partnership that will support your business's long-term financial health.

7. The Impact of Refinancing on Company Valuation

Refinancing, the act of revising a payment schedule for repaying debt, can be a strategic tool for companies looking to optimize their capital structure. It often involves replacing existing debt with new debt that has more favorable terms, which can lead to a direct impact on a company's valuation. This is because the cost of capital is a critical factor in the valuation process, and refinancing can alter this cost significantly.

From the perspective of discounted cash flow (DCF) analysis, the cost of debt influences the weighted average cost of capital (WACC), which is used to discount future cash flows. If refinancing leads to a lower interest rate, the WACC may decrease, thereby increasing the present value of future cash flows and potentially raising the company's valuation. Conversely, if the new debt comes with higher costs or more restrictive covenants, it could increase the WACC and lower the valuation.

credit rating agencies also watch refinancing activities closely, as these can affect a company's creditworthiness. A successful refinancing that improves a company's debt profile might lead to a credit rating upgrade, which can reduce the cost of borrowing in the future and signal financial stability to investors.

From an operational standpoint, refinancing can free up cash flows that were previously tied up in debt servicing. This additional liquidity can be used for investments in growth opportunities, operational improvements, or even further debt reduction, all of which can contribute positively to a company's valuation.

Here are some in-depth points to consider regarding the impact of refinancing on company valuation:

1. interest Rate reduction: If a company secures a lower interest rate through refinancing, it can decrease its interest expenses, leading to higher net income and, by extension, a higher valuation.

2. Debt Maturity Extension: Refinancing might allow a company to extend the maturity of its debt, spreading out repayments over a longer period and improving short-term liquidity, which can be viewed favorably by investors.

3. Covenant Adjustment: Sometimes, refinancing is not just about altering the cost but also changing the covenants associated with the debt. More lenient covenants can give a company greater operational flexibility, potentially increasing its market value.

4. tax Shield optimization: The interest paid on debt can often be tax-deductible, creating a tax shield. Refinancing can optimize this shield, affecting the company's after-tax cost of debt and valuation.

5. Risk Profile Alteration: By changing the composition of debt, refinancing can alter a company's risk profile. A shift from variable-rate to fixed-rate debt, for example, can protect a company against interest rate volatility, which might be reflected in a higher valuation.

To illustrate these points, let's consider a hypothetical example. Company A has a high-interest rate loan that is putting pressure on its cash flows. By refinancing to a lower interest rate, Company A reduces its annual interest payments from $10 million to $7 million. This $3 million saving directly improves its net income. Assuming a P/E ratio of 10, this could increase Company A's valuation by $30 million.

Refinancing can have a multifaceted impact on company valuation. It's a powerful strategy that, when executed effectively, can strengthen a company's financial position and enhance its appeal to investors. However, it's not without risks, and the actual impact on valuation will depend on a variety of factors, including the terms of the new debt, the company's existing financial condition, and the broader economic environment.

8. Legal Considerations in Debt Refinancing

When considering debt refinancing, legal considerations play a pivotal role in ensuring that the process aligns with regulatory requirements and protects the interests of all parties involved. This is particularly crucial in the venture debt landscape, where the stakes are high and the financial structures can be complex. refinancing venture debt involves renegotiating the terms of existing debt, which may include altering the interest rate, payment schedule, or other key terms. It's a strategic move that can provide a company with more favorable conditions, potentially leading to significant cost savings or improved cash flow management. However, it's not without its legal intricacies.

From the perspective of lenders, the primary concern is the enforceability of the new debt terms. They must ensure that the refinanced agreement does not conflict with existing laws or the original loan agreements. For borrowers, understanding the covenants and restrictions that come with the new terms is essential to avoid unintended breaches that could trigger defaults or penalties. Both parties must navigate the legal landscape carefully to achieve a successful refinancing outcome.

Here are some in-depth considerations:

1. Due Diligence: Before any refinancing can occur, thorough due diligence is necessary. This includes reviewing the original loan documents for any prepayment penalties or clauses that could impact the ability to refinance. For example, a 'no-call' period might restrict the borrower from refinancing within a certain timeframe after the initial loan issuance.

2. Regulatory Compliance: Both parties must ensure that the refinanced debt complies with current financial regulations. This is especially important in cross-border transactions where multiple jurisdictions may be involved. An example of this is adhering to the basel III regulations, which set forth global regulatory standards on bank capital adequacy and liquidity.

3. Subordination Agreements: If there are multiple creditors involved, subordination agreements must be reviewed and possibly renegotiated. These agreements dictate the priority of claims in the event of a borrower's insolvency. A practical example is when a venture debt lender agrees to subordinate their loan to a new senior secured lender, altering the repayment hierarchy.

4. Tax Implications: Refinancing can have significant tax consequences for both the borrower and the lender. For instance, if the terms of the debt are substantially modified, it may be considered a new issuance for tax purposes, potentially resulting in cancellation of debt income for the borrower.

5. Documentation and Execution: The documentation of the refinanced debt must be meticulously drafted to reflect the new terms and to avoid any ambiguities that could lead to disputes. Execution of the refinancing must also comply with the formalities required by law, such as obtaining necessary consents and registering the changes with relevant authorities.

6. Covenants and Conditions Precedent: The refinanced debt will likely include a set of covenants and conditions precedent that must be satisfied before the new terms come into effect. These could range from financial ratios that the borrower must maintain to the provision of additional collateral.

7. Representation and Warranties: Both parties will make certain representations and warranties in the refinancing agreement. It's crucial that these are accurate and not misleading, as any misrepresentation could lead to legal action.

8. Negotiation of Terms: The negotiation process itself requires careful legal consideration. Each term, from interest rates to maturity dates, must be scrutinized to ensure it serves the best interest of the party and does not expose them to undue risk.

By addressing these legal considerations, companies can navigate the complexities of debt refinancing with greater confidence and achieve outcomes that support their long-term financial strategies. It's a delicate balance of risk and reward, where legal expertise becomes invaluable.

9. Long-Term Advantages of Smart Debt Management

smart debt management is a critical component of financial strategy, especially within the venture debt landscape where the stakes are high and the margins for error are slim. By prioritizing the intelligent handling of debt, companies can unlock a host of long-term benefits that not only stabilize their current operations but also pave the way for future growth and success. This approach goes beyond mere refinancing; it's about creating a sustainable financial structure that supports a company's strategic goals.

From the perspective of a CFO, smart debt management means aligning debt obligations with cash flow projections, ensuring that the company can meet its liabilities without compromising its operational needs. For an investor, it represents a company's prudence and foresight, which are key indicators of its potential for long-term profitability and return on investment. Meanwhile, a financial advisor might emphasize the importance of diversifying debt instruments to mitigate risks associated with market volatility.

Here are some in-depth insights into the long-term advantages of smart debt management:

1. interest Rate optimization: By refinancing to more favorable interest rates or switching from variable to fixed rates, companies can save significant amounts of money over time. For example, a tech startup that refinances its high-interest venture debt to a lower rate can reduce its interest expenses by thousands of dollars annually.

2. Improved Creditworthiness: Consistent and strategic debt management can lead to better credit scores and ratings. This, in turn, opens up access to more competitive borrowing terms in the future. Consider a biotech firm that, through diligent repayments and smart leveraging of debt, improves its credit rating from BB to A, thereby reducing its cost of capital.

3. enhanced Financial flexibility: Smart debt management can free up cash flows that can be redirected towards growth initiatives. A case in point is a retail company that restructures its debt and frees up cash previously tied to debt servicing, allowing it to expand into new markets.

4. Risk Mitigation: By managing debt smartly, companies can avoid the pitfalls of over-leverage, which can lead to financial distress. An example here is a manufacturing company that uses debt covenants to maintain a healthy debt-to-equity ratio, thus protecting itself against downturns in the business cycle.

5. Strategic Financial Planning: Effective debt management enables long-term strategic planning by providing a clear picture of future debt service obligations and how they fit into the company's broader financial strategy. For instance, a software company might use smart debt management to plan for a series of strategic acquisitions without jeopardizing its financial stability.

Smart debt management is not just about surviving the present; it's about thriving in the future. It requires a multifaceted approach that considers various stakeholders' perspectives and employs a range of financial tools and strategies. By doing so, companies can enjoy the peace of mind that comes with financial health and the excitement of pursuing ambitious goals with a solid financial foundation beneath them.