Fixed Wireless Business

Vendor Financing for the WISP Industry — continued

[September 27, 2004]

Millions to lend
The fund is opening with $2 million, and expects to close with $10 million, placing the money over the subsequent 6 to 8 months. Deals will vary widely in size, ranging from small, for a rural WISP growing from 60 customers to 300, to larger, for a WISP that already has several thousand customers and is adding 150 per week.

The deals will not shove all the cash to the WISP at once. Instead, they involve a "master lease" agreement that allows WISPs to fund each build as necessary, on a quarterly basis. Nevertheless, no one WISP can get more than 5 percent of the whole fund.

The fund will have a loss reserve of 6 percent, which is relatively high for equipment leasing, Hayden says. That means Agility expects no more than 6 percent of all loans to be writeoffs. The equipment leasing industry average is between 2 and 2.5 percent, Hayden says.

Prevailing low interest rates make it a good time to raise cash for a relatively high risk fund. The co-founders believe the fund will prove, in practice, to be less risky than it appears to be on paper, which is why they are limiting the fund to $10 million. "We would like to plan on having a second and successive funds," says Hayden. "But we would like to see first how this fund goes."

The only risk Hayden foresees is an interest rate rise. "We bumped up the yield to investors maybe 100 basis points above what we had to, to enable us to lock in investors for three years. Once the lease is written to a client, that lease is fixed and the client has no risk."

That combination of high risk for the lender, low risk for the recipient, and exposure to interest rate fluctuations killed off vendor financing in the telecom industry. Agility reports that equipment sales people are thrilled to know millions of dollars in financing will soon be available to WISPs. But Agility will need to avoid the mistakes the equipment vendors themselves made in lending to this market. That won't be easy.

On the other hand, MacNamara reports that all equipment vendors are eager to work with agility to build the sort of sales stream that vendor financing enables without taking any risks themselves.

If it succeeds, Agility will be more than just a financing company. As they examine more and more WISP business plans, MacNamara and Davis find themselves giving free advice. It therefore makes sense that the company could branch out into consulting. Of course, a mixture of consulting and accounting led to the fall of Arthur Andersen. That sort of problem, should it ever arise, is a long way away from today.

—End

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