This Mid-Sized Steel Casting producer located in southern Iowa was (and still is) one of the country’s oldest continuously operating steel casting companies. The Company was founded in 1909. It originally served the farm equipment, mining, crane equipment and chain belt industries and was formerly located in the Milwaukee, WI area. In the early 2000’s and into the next decade, the Company grew to $70M in revenue and 400 employees.

What Trouble Looks Like

The Company’s real troubles started in 2014, when the foundry industry began a sharp decline from weakness in the mining, agriculture, oil, and gas industries – a decline that would ld last for years. With sales dropping and costs rising. By May of 2016 The Company had defaulted on its bank agreements due to a significant decline in its financial condition. These losses continued with revenues declining well into 2016. By the end of 2016 revenue would drop by $8M! The Company did not have many choices – either turning things around or closing up shop. TPMA was brought in by the Bank to assess the situation. We recommend, based on a strong customer base and support from the Bank, a turnaround was not only feasible but justifiable. The goal for us and their Bank was to preserve jobs.

Our Findings

  • Cash was in critical condition; difficulty paying suppliers, many past due with the impact to close the foundry down due to insufficient materials; operations were shutting down routinely; barely able to cover payroll.
  • Company in a true “turnaround” situation; management has been operating in this situation for over 2 years without success.
  • $10MM in Bank secured debt
  • $9MM in unsecured debt
  • Revenue declined rapidly starting in 2014.
  • Actual margins running below 5%; specific products at negative margins.
  • The Company had deferred its 401(k) profit sharing contributions of $338,000 going back 3 years.
  • Overall inventory levels too high – at around $9M
  • “Salaried” workforce already took a 10% salary cut and reduced staff by 30% in September 2016

The Turnaround Begins

Our first recommendation was to enter into a Forbearance Agreement,” whereas the Bank agreed to forbear from exercising certain rights. Included in the forbearance agreement were certain provisions requiring the Company to initiate a turnaround “Go Forward Plan” and to appoint a Chief Restructuring Officer. Turning Point Management Advisors LLC (“TPMA”) was appointed to the newly created positions.

The Turnaround and Restructuring Process.

Under the direction of TPMA, the Company put together and implemented a “Go Forward Plan” that was presented and approved by the Bank and a participating Bank on November 30, 2016.

Turnaround Activity

  • We created a Go Forward Business Plan that demonstrated short-term, mid-term and long-term viability with clear assumptions.
  • We negotiated directly with several trade creditors ($9,000,000 in unsecured debt) to assure continued support of supplies and materials. This included deferrals of close to $1M.
  • Customers received an across-the-board general price increase, and we also were the main conduit for contact, negotiating and management of customers.
  • In November of 2016, TPMA with executive management met with union leadership and proposed a 10% wage reduction for all union employees; the proposal was accepted and reduced annual labor costs by over $1,000,000.
  • Certain prepayments from customers
  • Additional cost reduction items that effectuated a reduction in monthly cash burn which included process improvements (scrap. efficiency, overtime, labor utilization).
  • We did extensive reviews focusing on variable and fixed margins, implemented changes to increase margins or to some extent, exit unprofitable business.

These changes had a positive effect on EBITDA as early as November of 2016 and most of 2017. With the aggressive restructuring initiatives that were undertaken – projected positive EBITDA of close to $2.8M in 2017 and $6.3M for 2018.

What The Win Looked Like

As noted above, the Company was very successful in 2017 as the Company had $37,161,000 in net revenues and almost $1,500,000 in positive EBITDA. which was a year-over-year improvement of close to $5,000,000. The Company was an “orphan company” of a private equity in Milwaukee, WI as the firm had sold off all the other companies in its investment portfolio.

Ownership decided that now was a good time to sell the Company. Through our M&A advice, in 2017, a qualified buyer was identified and signed a Letter of Intent to buy all the assets of the Company.

New Direction

In February 2018, we discovered that a key competitor purchased an unsecured creditor’s debt and with the cooperation of two other unsecured creditors that they solicited, the group forced an involuntary bankruptcy.

In March 2018, TPMA and Company ownership engaged Bradshaw law firm, Des Moines, IA as debtors counsel. Immediately, The Company filed a petition for Reorganization under Chapter 11, Title 11. The involuntary bankruptcy filing was dismissed.

Next Steps

TPMA was re-engaged as CRO and financial advisors along with debtor’s counsel. We attended and advised on Court hearings and with Court approval, retained the investment banker. We continued oversight of the Company operations, financial condition and Banking relationships including DIP financing.

It was agreed between debtor’s counsel, the Company and TPMA to conduct a Section 363 auction and secure a stalking horse bidder. Initially, the potential buyer agreed to stay in the deal as the stalking horse but unfortunately dropped out given the participation of the above competitor. Fortunately, the investment banking process yielded a local buyer as the stalking horse.

Ultimately the Company assets were sold via auction to the local buyer and on July 28, 2018, and all 225 employees were re-employed by the new Company.

The Bank decided to finance the new Company and remains the lender to The Company. It continues to operate today with an additional approximately $6M in new cash. And no major customers were lost in this process.

Twists and Turns

We experienced many twists and turns in this turnaround but in the end the Company is operating with full employment as the two hundred plus employees retained their jobs and lost no major customers.

This engagement won Turnaround go the Year in 2019.