A mid–sized iron foundry in the Upper Midwest had successfully orchestrated a business turnaround and bank credit line renegotiation through the management and guidance of the principals of Turning Point Management Advisors. However, the most recent economic downturn caused the Company’s monthly revenue to drop precipitously by 50-75%. The Company needed additional financing and/or capital to sustain itself during this business downturn. Banks were very risk averse as their own balance sheets were being scrutinized by bank regulators during the financial system crisis. If capital and/or financing could not be obtained, ownership would be forced to sell the Company. If a sale of the Company could not be completed, liquidation would be the only option.
We assessed the Company’s operating cost structure and reduced expenses wherever possible to minimize the current cash burn. We conservatively projected the business over the next two years to determine the required interim, and potentially permanent, financing required. We met with the current bank to determine their willingness to lend additional funds to the Company if a security interest could be provided in additional collateral (land, buildings, and fixed assets). The current bank was not interested in expanding the current credit agreement. We met with other banks, but they were not interested in providing a new credit facility given the uncertainty of the industry and the economy. We asked ownership if they were willing to inject the capital necessary to sustain the business over the next 24 months. They were not interested. We proposed to ownership and the bank an aggressive plan to market and sell the Company within 6 months.
Within four months, we completed the sale of certain Company assets (the customer base and some fixed assets) to a leading firm in the foundry industry. The proceeds allowed all secured creditors to be paid in full. Through an out of court liquidation, the remaining fixed assets have been sold and the real estate is in the process of being put on the market. We expect the unsecured creditors to recover $.30 – $.50 on the dollar. In addition, we were able to negotiate a sizable non-compete payment for ownership. All stakeholders are very pleased with the outcome of these transactions.