Top 10 List for Challenging Credits
December 18, 2019
Top 10 List for Challenging Credits
Some of the borrowers we finance have challenges or are looking for capital to fund the next stage of their turnaround. There are time tested rules and adages that apply to both Lender and Borrower in difficult credit situations. As we at Blacksail Capital Partners (“Blacksail”) try to help small and medium-size businesses get the capital they request, we also endeavor to stay cognizant of the “lending laws of nature” that will keep us all safe.
Blacksail is pleased to offer the following Top 10 List in Challenging Credits:
- Cash is King, long live Cash.
- Two things are necessary for any chance of a successful turnaround or restructuring – TIME and MONEY. If you have one or the other, you have a fighting chance. With neither, it is game over. WHY? With TIME you can find MONEY; with MONEY you can buy TIME.
- Communicate, Communicate, Communicate. No one likes to be surprised.
- Vendors always want to be paid in full and on time; however, they also need to see activity on their accounts.
- Model, remodel, evaluate and re-evaluate your financial needs and operating performance. There is no excuse for not knowing your current month’s financial performance.
- In the Draconian and Machiavellian world we find ourselves in, if your key employees are not contributing their best efforts, the market place has highly qualified and available people on a variety of employment arrangements.
- Make sure you understand the financial implications of your business decisions. You may have past due receivables, but you are reluctant to take a discount. Like Monty Hall used to say on Let’s Make a Deal, take the cash!
- There is no need for a long-term plan if you can not survive the short-term.
- Reconsider your organizational chart. Change for the sake of change does not always yield improvement, but an outdated corporate structure can lead to stagnant thinking.
- There is the adage, “When you find yourself in a hole, stop digging.” The hole you find yourself in can provide the opportunity to rethink your business. A top to bottom review of how your business functions can lead to new insight, new approaches, and new outcomes.
Snack Food Acquisition Financing
- A Snack Food Manufacturer the (“Borrower”) with a storied 75+ year history in the bagged pretzel/chip marketplace. From family ownership through management buyout 8 years ago, this company has been profitable and the gold standard for their snack category.
- The Borrower has been in on-and-off negotiations with a complementary, privately-owned specialty food company that coats snacks with chocolate and other flavour enhancers.
- The Borrower finally settled on a definitive purchase agreement with the complementary specialty food company that will benefit all parties with significant synergies, greatly enhanced plant utilization for both companies and immediately accretive earnings.
- Both management teams were shocked when neither of their incumbent commercial lenders would provide the financing needs for the combined company. Existing or new commercial lenders wanted no part of a business strategy with experienced, proven, complementary companies that are very easy to understand.
The Blacksail Partnership Outcome
- Blacksail allowed the Borrower to use cash flow projections of the combined entity, which afforded ample borrowing base to pay the seller, retire the existing bank debt and provide requisite working capital.
- Blacksail also worked with the Borrower to find replacement mortgage debt in the middle of the transaction.
- The result was a $4.5 million facility, consisting of $3.5 million revolver secured by AR and an oversized inventory borrowing base, $1.0 million term loan secured by M&E with extended amortization to keep P&I payments manageable.
- The two companies are now combined and working to achieve their potential thanks to structuring flexibility by Blacksail.
For more information on Blacksail Capital Partners, please contact us.