Cincinnati , Ohio
Distributor of fuel and heating products throughout Ohio, Kentucky, and Indiana. Electricity supplier to Ohio residents. $800 million in annual sales. Annual volume; 350 million gallons of petroleum and 345 million kilowatt-hours of electricity. $50 million bank debt.
- Oil prices plummeted to record lows due to a global supply surplus and other macro-economic reasons.
- Lykins purchased commodity contracts to hedge supply contracts with its customers. The significant decline in oil prices triggered margin calls of $9 million at Lykins
- The $9 million of cash payments resulted in non-compliance with their Financing Agreement’s Minimum Availability Covenant and depleted most of the company’s line of credit availability and liquidity.
- The company needed a plan to absorb and fund their operating expenses and cash requirements while complying with its existing credit facilities.
- MorrisAnderson was engaged to assess short term liquidity, longer term viability and explore all strategic options as well as to assess the company’s hedging contracts, existing hedging practices and recommend changes to their policies and procedures.
- MorrisAnderson provided the analysis (daily, weekly and monthly) to prepare and negotiate three separate Forbearance Agreements. The Forbearances covered 6 months and initially required a $6 million over-advance, $1 million Minimum Availability Covenant and $1 million subordinated debt.
- MorrisAnderson also prepared a documented procedure to prepare the company’s liquidity and borrowing base forecasts with supporting documents.
- The financial forecasts were expanded to include monthly income statements, balance sheets and cash flows.
- The financial forecasts provided by MorrisAnderson, and the resulting Forbearance Agreements provided stakeholders with the necessary time and information to initiate thoroughly analyzed business decisions.
- Management pursued a multi- path strategy including a) company sale in whole or in part, b) refinancing with the Agent Bank or c) refinancing with another lender. Ultimately management decided not to pursue a sale and the Agent bank decided to exit the credit. However, a Participant Bank was interested in financing 100% of the credit. The Participant Bank initiated due diligence with their team working closely with MorrisAnderson and the company.
- The Agent bank was refinanced and paid out 100% by the Participant Bank. Closing was achieved within 60 days of initiating due diligence and prior to year end.
- The company now has a robust financial forecasting system and a new hedging policy with tighter procedures and increased management over-sight.