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REX Debt+Share Royalties Calculator
REX Debt+Share Royalties Calculator
For some companies seeking financing and also for some investors there can be advantages in using royalties in conjunction with debt. In the case of a Debt+Share royalty financing the parties agree on the amount of money to be borrowed by the company, the maturity of the loan, the amortization schedule, the interest rate and other terms regarding the loan.
The royalty associated with the Debt+Share royalty financing begins on the repayment of the loan. The revenue sharing royalty can be for a negotiated segment of the revenues of the royalty issuing company, such as the revenues from an agreed point forward. The royalty can also be for a negotiated percentage of the revenues and continue for as many years as agreed.
The percentage of revenues paid to the royalty owners will be substantially less than were the original funds not have been loaned and repaid. Indeed, in many cases the funding would not have been attractive to investors had the original amount of money made available to the company not been in the form of a loan.
Once the loan has been fully repaid the investor has no further risk of capital loss and is therefore willing to accept a much smaller share of the company's revenues as an inducement to making the loan than would have been the case were the original funds being solely based on revenues.
Therefore, the company is advantaged by being able to attract funds with a lesser revenue sharing during the course of the royalty payment period and the investor is served by having a full return of capital in a defined period and with an agreed return.
Debt+Share Royalties - Details of website use
The maturity, amortization, interest rate and collateralization of the debt is subject to negotiation between the investor and the company issuing the royalty. The terms of the royalty are also subject to negotiation.
For example, purposes the following data will be used. Click here for the example (Unless already logged in)
Current year revenue $20.0 million
Loan (limited to 50% of current revenue) $10.0 million
Loan maturity 5 years
Loan interest, paid from commencement 12%
Loan amortization (monthly) 60 equal monthly payments
A (1%) royalty is paid on the revenues in excess of those at time of loan for (15 years) 15 years after loan repayment
Parenthesis are used to indicate negotiable elements of the transaction.
Internal Rate of Return (IRR) is the rate of growth of a project; it is used to measure the profitability of an investment. Beginning with the amount of an investment, the net revenue (cash flow) over a given time period is analyzed, yielding a percentage value. It is assumed that revenues are reinvested in the project; inflation, taxes and other external factors are not included. The resulting annualized compound rate of return often used by investors to assess if a particular investment is desirable, compared to the cost of capital, or compared to an industry average. Useful technical detail and discussion are available at:

The result of an issuer using a Debt+Share royalty over that of a royalty covering all revenue from the time of acquisition is generally a lower cost of capital during the entire royalty payment period.
The advantage to the issuer of acquiring the same amount of capital through the sale of debt, if a buyer is available, is the absence of a fixed revenue-based payment and only needing to repay the loan as agreed.
From the perspective of the investor the returns will be more assured, but less than in the case of a straight 20-year royalty at normal rates for a company having growing revenues. The investor will have greater security by using a Debt+Share royalty approach, even though receiving less income than would have been the case using a straight royalty if the company is successful.
Royalties have the advantage of being able to be structured to meet the needs of both the capital providers and the capital users. In the REX Royalty Comparator website users can also enter data for royalties using different deal terms and observe the impact of the term differences, assuming the projected revenues are achieved. In the original website - www.REXRoyalties.com the data can be entered and the final result observed, again assuming the revenues projected are achieved.
Please review both the Samples and the FAQ sections for a better understanding of our service and send me additional questions and comments. We will not publish these questions or comments without your permission to do so. The concept of a Debt+Share royalty is covered in a recent patent filing and the proprietary website and its functioning is protected by copyright.
We are available for consulting.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
858 793 7100 - Skype: artlipper
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