New Orleans firm hoping to fill telecom cash void

10/10/02

By Stewart Yerton
Business writer/The Times-Picayune

A new New Orleans-based venture is hoping to tap into the telecommunications industry by providing financing to long-distance providers and small local phone companies nationwide.

Thermo Credit LLC will begin operating this week with a three-person headquarters office in the Central Business District, said Jack Eumont, executive vice president in charge of internal operations. The company plans to expand to 12 employees within the next year, Eumont said. Average salaries will be $40,000 to $50,000.

Thermo Credit's main investor is Thermo Capital Partners LLC, a private equity fund with $100 million in assets and offices in Louisiana, Colorado and New York.

Jim Lynch, Thermo Capital's managing director and co-founder, will serve as president and chief executive officer for the company, which will be run day-to-day by Eumont and Seth Block, executive vice president for external operations and business development.

Thermo Credit hopes to carve out a niche by providing cash to an industry facing difficulty obtaining traditional financing in the wake of the high-profile failures of WorldCom Inc. and Global Crossing Ltd.

"To some extent, telecom is a four-letter word to a financial institution, so they have a very hard time obtaining credit from a bank," Eumont said. "Yet these companies still have an opportunity to grow and achieve very high margins."

Small telecommunications companies, he said, often face particularly thorny cash-flow problems. Long-distance resellers, for instance, sell long-distance service, which is provided by regional phone giants such as BellSouth, which also bill customers, Eumont said. This billing method means the small long-distance resellers often must wait 60 to 75 days to receive payment, he said.

Meantime, many vendors of the resellers have grown leery of the telecommunications industry and often want their payments delivered on a much tighter schedule. This time spread has created difficulties for the resellers, as traditional financiers have grown reluctant to extend revolving credit lines.

Thermo Capital intends to address this problem by buying accounts receivable from the telecommunications firms at a small discount. The practice, known as receivable factoring, allows the telecommunications firms to get money much faster.

"The fee is a lot like an interest rate, but it's not an interest rate because it's not debt," Lynch said. "We're not a bank; we're not a lending institution."

Other local firms, including banks, practice factoring. But Thermo Capital hopes to carve out a niche in a field others prefer to avoid, Eumont said.

"Our understanding of the industry and our faith in the industry is what is allowing us to go into this little niche," Block said.

A factoring company typically analyzes the creditworthiness of its customers' clients. For example, it wants to know if a telephone company's customers can pay their monthly bills. This is important because the factoring firm expects to be able to collect those payments.

This is relatively simple in many industries, Block said, where a business might have a client base of 100 business customers with monthly bills of $10,000 to $20,000 a month.

But long-distance resellers often have 10,000 customers or more with average monthly bills of $50 to $100. Analyzing the risk associated with such a client base is entirely different in such cases, Block said.

"It gives a lot of people grief," Block said. "It doesn't give us any because we understand the nature of the game."

Block is moving to New Orleans from Houston, where he said he worked for about seven years in the telecommunications industry, including a six-year stint as a senior vice president with Smoke Signal Communications.

Eumont previously served as chief financial officer for Ramsey Health Care Inc., which moved from New Orleans to Coral Gables, Fla., in 1995, and was co-founder and chief financial officer PeopleWorks Inc., which was relocated to Little Rock, Ark., in 2000.

The company has received significant support from Beth James, director of the New Orleans Office of Economic Development, and Matt Carmichael, director of the office's department of business retention and attraction, Eumont said. The firm also hopes to tap into the state of Louisiana's Quality Jobs Program, which provides tax incentives for employers.

Eumont said he thinks Thermo Credit can grow to 70 employees within five years.

"We're trying to attract people from this area," he said. "We want to try to keep them here as opposed to having them leave the city."