Helping Owner Salvage Value After Industry Collapse

Aerospace & DefensePerformance Improvement

160M

Annual Sales

75M

Debt

DRT, Dayton Ohio

Challenge

Machine shop manufacturer of precision tooling and parts primarily for aerospace and packaging industries. $160 million in annual sales. $60 million credit facility, five bank lenders. $13 million equipment leases, four lessors.

  • Company grew via acquisitions funded by bank debt – high leverage and tight liquidity.
  • Company incurred loss issues with integrating two of the recent tuck-under acquisitions. Delays in transitioning accounts resulted in push-out of shipments/revenue causing a significant miss to financial projections and triggering defaults to FCC and Leverage covenants.
  • Lenders decided to exit the credit, forbear on defaults with tight timeline for refinancing. Company obtained terms from non-bank to refinance in 90 days.
  • Then a dramatic decline in business and leisure travel (caused by Covid) halted refinancing prospects for the aerospace business. Without a viable exit, the Lenders had to hold until capital markets returned.
  • COVID ultimately reduced annual revenue by 25% and EBITDA by 50%. Company was on trajectory to exhaust cash, impairing Lenders’ 100% recovery.

Solution

  • Developed plan to reduce fixed costs that included closing two facilities and obtaining rent concessions from landlords.
  • Advised management to ignore customers’ requests to continue to build inventory orders at pre-COVID demand levels, preserving cash. Subsequent workdown of Inventory, adjusting for new revenue run-rate, helped provide cash liquidity.
  • Established diligent Accounts Receivable monitoring and collections that mitigated an increase in charge-offs and DSO.
  • Identified pricing issues, made recommendations to improve bidding process and costing methodologies.
  • Obtained $10 million loan through the Payroll Protection Program.
  • Negotiated forbearances and attainable amendments to debt service with Lenders.
  • Periodically tested capital markets, restarted financing initiative when closing amounts could be reasonably attained.
  • Maintained weekly financial projections and communications with Lenders and Lessors on initiatives and liquidity.

Results

  • Cost-savings and efficiency initiatives resulted with stabilization of the Aerospace business EBITDA to break-even by year end.
  • Improvement in working capital generated over $6 million cash liquidity, a lower, and sustainable, cash conversion cycle.
  • 6 months later attracted capital proposals sufficient to payoff 100% bank debt plus provide go-forward liquidity.
  • The Company closed on its recapitalization with a new 80% owner, repaying the bank debt and injecting the business with sufficient liquidity to endure and rebound.
  • Equipment lessors, satisfied with liquidity forecasts, consented to continue.
  • Bank lenders endured twelve months of forbearances (5), progressed from an impaired situation to a full recovery.
  • Owner avoided a Chapter 11 which would have been personally devastating.

Contributors