Client company is a fourth-generation, family-owned distributor of Construction and Mining Machinery and Equipment in default with the senior lender.
The recession hit our client hard, wiping out earnings and creating a weak balance sheet – overheavy with debt. The situation was bleak, with global production down, credit terms tighter than ever, and inadequate inventory to meet customer demand.
Although the economy began to pick up, the company’s lack of earnings, weak balance sheet and tougher underwriting standards made refinancing highly unlikely, leaving liquidation as the most obvious next step.
For over six months, a critical unsecured creditor/supplier worked side-by-side with the company, attempted to negotiate a payment plan, establish new credit terms or form a joint venture, but to no avail because the founding family demanded they remain in control. As a result, the senior lenders initiated a collection action to liquidate the assets.
Cascade Partner’s Restructuring Team was brought in to advise Client Company’s management on strategic options. The team negotiated a short-term Forbearance Agreement with the senior lender and analyzed the company’s balance sheet for undervalued assets and liabilities restructuring opportunities. The team built a 13-week cash flow model, identified cost reduction opportunities, and prepared a liquidation analysis illustrating a shortfall to the senior lender and supplier.
After analyzing the data, our team implemented a cost-cutting budget and plan to improve profitability during the current year. We also presented a breakeven analysis, 3-year projections, and a turnaround plan to the supplier.
By facilitating a three-way negotiation between the client, a critical unsecured supplier and senior lender, our team was able to improve communication and visibility with the senior lender and provide our client the time they needed to implement the necessary changes. The end result was a successful restructuring that increased profitability and secured the company’s future.
The Cascade Advantage
By cutting labor, manufacturing overhead and SG&A and securing a loan participation agreement between the senior lender, supplier, and client, our team successfully turned the business around with an impressive reduction in breakeven of over 24%. In less than a year, the senior lender secured a clear path to exit in less than a year, and the supplier transitioned from an unsecured to secure position while retaining a major customer. Furthermore, we improved their on-time delivery performance by opening up credit lines with a critical supplier during negotiations. As a result, the client could retain ownership of the business and sustain profitable operations.