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Assessing a Hunch Puts Lender in the Driver's Seat The Challenge A nationally-known commercial lender had a good relationship with its client who provides products and services for handling petrol and industrial liquids. However, the lender was concerned that the company was always at the maximum of its revolving line of credit, constantly short of liquidity; and appeared to lack strategic focus. The Art of the Rebound The lender called on ABTV to quietly perform an analysis of the company to assess the source and seriousness of the bank's observations. ABTV's review identified that the company did indeed have a liquidity crisis, confirming the bank's hunch. The company already was highly over-leveraged versus peers with large amounts of non-bank sub debt. The fix would have to come from new equity. ABTV believed the sub debt would have to be converted to equity in order to attract additional equity. ABTV also confirmed that operations were in disarray. Due to the liquidity crisis, the company had come to believe that all revenue was good revenue. The company was chasing every bit of what it considered to be "low-hanging fruit" (sales revenue), but in the process, creating a very inefficient operation. ABTV determined that the company lacked both an approach and the financial investment to achieve the required changes to address its liquidity crisis. The Outcome Drawing from extensive experience in assessing complex financial and operational challenges, ABTV provided detailed analysis to support the bank's reservations, as well as strategic recommendations and guidelines for the bank to hold the company accountable. This approach allowed the bank to participate in the rehabilitation of the company. It also resulted in ABTV assisting the bank in establishing performance and operational measurements for the company, including conversion of debt to equity, obtaining new equity, and progress toward the strategic recommendations made by ABTV. As a result, the bank's risk profile was lowered by virtue of additional investments and the bank's risk continues to be mitigated through the operational and performance metrics put in place. |
