Reducing Inventory Allows for Refinancing for Agriculture Distributor

Challenge

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$90 million Revenue. Agriculture Chemical & Feed Distributor. $20 million Secured Debt.

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• Company decided to ramp up operations while a drop in commodity prices had yet to hit bottom, ultimately causing large losses two years in a row.
• Agriculture commodity prices dropped causing a ripple effect to the suppliers of chemicals and feed.
• Large chemical manufacturing companies merged, further causing prices to drop by as much as 25%.
• The company doubled down on their inventory position in the middle of the turmoil causing large losses two years in a row.
• Poor accounting and financial disciplines causing a large disconnect between operations and finance team.
• Seasonal business with liquidity shortage during the late summer and fall season.
• Heavily reliant upon manufacture rebates to fund off-season liquidity shortage.
• ABL lender wanted to be refinanced prior to the beginning of the next season.

Solution

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• Excess inventory returned to manufacturers to reduce outstanding payables.
• Aged inventory liquidated to provide additional liquidity for paydown of the secured debt.
• New accounting system implementation to better track and manage manufacturer rebates.
• New policies and procedures established between operations and finance to better manage the business.
• Exit non-profitable manufacturer rebate programs.

Results

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• Inventory reduced by $13 million (60%) to satisfy vendor payables and covenant compliance with ABL lender.
• Exited several non-profitable manufacturer rebate programs and negotiated higher rebates from long-standing suppliers.
• Implemented new accounting system to better track profitability and manage rebates.
• Refinanced $20 million ABL loan to a new lender.