CAPITAL STRUCTURE
To acquire an asset or a group of assets an individual limited liability company is formed with Stephens & Stephens, LLC, as the Manager, with Stephens family investment entities equity providing 10% to 25% of total equity (decreasing where equity is over $10,000,000) with the balance provided by outside investors. Stephens family participants and the outside investors constitute the Capital Partners in an individual investment company.
The structure is generally organized so that capital providing members (the cash providing members of a separately formed limited liability company organized to acquire the target asset) receive a cumulating and compounding preferred return on capital (between 6% and 10%, depending on the risk profile of the investment). Stephens & Stephens, LLC, as sponsor/manager, receives a "carried interest" of 30% after the preferred return, increasing based on a "waterfall" standard for increasing yields on higher risk investments. Stephens & Stephens, LLC, is paid an acquisition fee, and an annual management fee is paid to its management company affiliate.
Debt generally represents from 60% to 70% of acquisition cost and is usually initially guaranteed by the Firm until some level of maturity in the investment is achieved. The Firm has a large, unsecured line of credit for acquisitions, which is available when a seller needs a close of escrow in a time period less than is required to form a new Stephens sponsored investment company and obtain financing. In this case, the credit facility is used to bridge the equity and debt until the investment company is completely formed, the institutional debt is in place and the equity is arranged. This facility is available at cost to the investment company.