MorrisAnderson Negotiating a Debt Restructuring and Refinancing
Jewish Community Center, St. Louis Missouri
Multi-location community centers. $25 million sales. $58 million debt incurred to build state of the art facility and to refurbish existing facilities.
- Donations and returns on investments in endowments (primary source of repayment) had fallen significantly below projections.
- 10 donors accounted for more than 90% of the capital raising capacity.
- Incurred debt to build/refurbish facilities with plan for continued donations and investments in endowments.
- Recession resulted in a declining trend that underachieved projections for operating revenues, donations, and loss of principal endowments; the decline in interest rates resulted in lower returns on remaining investments.
- Senior lender filed lawsuit after default on payment and unsuccessful attempts to discuss restructuring the debt.
- Structure of debt was multi-faceted: line of credit, bonds, interest rate swap agreement and letter of credit.
- Additional factors more unique to non-profits: significance reliance on cash from donors; inherent absence of equity owners; major donors impact the situation and solutions.
- Ensured management was teamed with financial, legal, and public relations advisors to consider all options.
- Ensured restricted assets were appropriately and distinctly separated from unrestricted assets.
- Developed long-term cash flow forecast to illustrate feasibility of options with management, key donors, and lender.
- In each scenario, ensured all stakeholders were identified and roles/impact were considered.
- Led negotiations with the lender, obtained stand-still on litigation while negotiations continued in good faith.
- Provided assessment of the situation along with options and recommendations for attainable solutions.
- Ensured the Board was informed and major donors were actively engaged in exploration of scenarios.
- An out-of-court resolution was devised that was satisfactory to the lender and the client.
- The debt was restructured so as to allow the lender to exit the debt.
- All of the facilities and services continued uninterrupted during this process.
- Secured lender recovered $45 million of $58 million, significantly above lender valuation.
- Client paid majority of settlement in cash due to secondary fundraising campaign and new bank loan.