WRA helps companies that have seen a significant decline in revenue or cash flow and therefore are in breach or soon will be in breach of one or more of their loan covenants.
Strategic questions to answer in a turnaround/restructure:
- Has a financial model been developed to quantify what it takes to get into compliance?
- Can you achieve compliance in two to three quarters by growing revenue and cash flow from operations without an external infusion of capital?
- If not, are you prepared for a recapitalization of the company, which could range between taking on a minority equity investor to a change in control transaction?
- Or, are you likely to be heading to Chapter 7?
A recent survey by Deloitte of Chief Financial Officers revealed, “that two-thirds of CFO’s say they are at least somewhat concerned that their strategies are not well enough defined and clarified, with 28% indicating strong concerns, and more than half say they are at least somewhat worried about reaching agreement around their strategy – both within their management teams and with their investors.”
How can WRA assist your company in evaluating its options:
- Review the vertical you operate in to determine if the revenue model still works.
- If not, what options do you have to modify it?
- If revenue model isn’t broken, have you worked through an operational triage program to right size the business?
- In addition to financial capital necessary to move back into bank loan compliance, identify other resource requirements, how long it will take and is it feasible.
- Is the market growing or will you have to take business away from competition to grow your way out of the compliance issue? Does management have a plan to do so?
- Do you have a management information system that generates the critical data points needed to manage the business? Does management review it on a regular basis? Does management have a good understanding of the drivers of revenue?
Given answers to the above sampling of facts, WRA will:
- Review your financial model and forecast including assumptions, modify as necessary to generate all three financial statements, income statement, balance sheet and cash flow that are linked and prepared in accordance with GAAP.
- Prepare a financing memorandum (“FM”) that describes the business, competition, historical financials, restated financials (owner add backs), type of transaction contemplated (growth capital, recap or change of control etc.), the investment and/or loan opportunity, use of proceeds of the financing and expected operational and financial results of the financing.
- Prepare a target list of prospective lenders and/or investors and write a teaser letter.
- Contact prospects and explain the opportunity, transaction and company.
- Arrange for onsite visits and handling all due diligence issues/questions (while you run the business).
- With your input, negotiate letters of intent.
- Supervise the generation of closing documents and
- Close the transaction.
Deploying this proven methodology WRA has been able to help clients:
- Remove personal liability
- Negotiate the pay-off of banks
- Negotiate the pay-off to subordinate lenders
- Negotiate cash equity distributions to owners
- Reduce trade credit indebtedness, and
- Increase working capital