Refinancing a Low Margin Company

Challenge

$180 million Tobacco, confectionary distributor to convenience stores and specialty shops. $10 million debt.


  • Loss of key account resulted in 20% decline in revenue. Fixed Charge Coverage fell below 1x
  • MorrisAnderson was engaged to develop turnaround plan and refinance credit facility
  • Well-established distributor lost a significant account, causing dramatic decline in financial performance.
  • Fixed Charge Coverage fell below 1x -triggering a default to a loan covenant – and was continuing to decline.
  • Lender’s perception was Company was slow in initiatives to replace lost revenue and to cut costs. Despite having the account perform well for several years, lender fatigue was rapidly increasing towards exiting.

Solution

  • MorrisAnderson (MA) assessed the business operations and identified areas of improvements in product mix, warehouse slotting,safety, asset leases, various components of variable cost and fixed cost structure.
  • Provided recommendations for improving the business, reviewed and prioritized performance improvement initiatives and assisted management with implementations.
  • Constructed a 52-week baseline financial statement and cash flow forecast with key assumptions for performance improvement.
  • Pathway for financial improvement to >1x FCC was beyond a timeline the lender would accept. MA negotiated a loan forbearance with reasonable terms to allow sufficient time for an orderly refinancing.
  • MA prepared a marketing summary, information memorandum, and financial and other data pertinent to prospective lenders conducting preliminary due diligence.
  • MA used its network to solicit 40 prospective lenders and led all discussions with interested parties.

Results

  • Executed NDAs with 28 prospects and allowed access to the confidential data room.
  • The competitive process generated 10 term sheets for Company’s consideration; MA narrowed the group to four for meetings with management and then negotiated final terms to select the desired new lender.
  • Continued to manage the process to achieve loan closing within the projected schedule and in less than 90 days.
  • Legacy lender was paid in full, all conditions and milestones stipulated in the Forbearance were satisfied.
  • The new lending relationship began with appropriate Availability and covenant structure to allow the Company sufficient time to execute its Turnaround Plan.

Daniel Wiggins

Daniel Wiggins is a Managing Director at MorrisAnderson with notable turnaround and transaction experience. In building value for his clients Daniel focuses on enhancing stakeholder relationships that optimize business continuity and he frequently leads negotiations with clients’ key suppliers, customers, and lenders – particularly during restructuring initiatives. An additional focus of Daniel’s engagements is mentoring… Read More