Precast Concrete Building Manufacturer
The situation: Our client had been losing money for four years and was in default on its $12 million line of credit with its working capital lender. The lender had converted $6 million of the line to a term loan with monthly principal payments that further constricted cash flow and stretched trade debt to its limit. The company had entered a forbearance agreement with the lender that would expire in 30 days, upon which time the lender was prepared to foreclose on the loan and force the company into bankruptcy.
Our role: We immediately put together a plan to increase cash flow and return the company to profitability, then negotiated with the existing lender to give us additional time to attract a replacement. To increase cash flow, we negotiated with the company’s largest suppliers to convert their balances to longer-term notes while continuing to sell to the company under extended 60 day terms. We identified production processes that were creating a backlog and reduced production cycles, which brought the company back to profitability and increased cash flow by reducing WIP inventory by 50%. We negotiated with the existing lender to include additional collateral in the line to increase the borrowing base and to extend the forbearance agreement for 6 months to allow the company time to attract another lender. With competing bids from four lenders, we replaced the existing line of credit with a $20 million line.
Automotive Equipment Manufacturer
The situation: When its largest customer, GM, shut down production of several plants, our client’s sales deteriorated. The company sustained large operating losses but continued operating with a full labor force founded on GM’s optimistic reassurances that it would resume full production soon. This created excess inventory, and when the production shut-down lasted longer than anticipated, the company defaulted on its $6 million revolving line of credit. Subsequently, the bank froze all lending.
Our role: Our immediate priority was to develop a short-term plan that increased cash flow while reducing the company’s breakeven point. We changed the sales assumption model to reflect more realistic economic conditions and projection targets, which gave our client a tool to manage labor requirements and inventory. We also analyzed existing contracts with customers to determine profitability and determined that one of these contracts was unprofitable.
We worked with suppliers to increase credit limits and to extend payment terms that provided $700,000 in additional cash flow. We negotiated with the bank to waive existing loan covenants and to continue lending based on the turnaround lan. Improved credit procedures increased cash by another $250,000, while the sale of a small division netted an additional $3 million.