The Bottom Line:
After being engaged as financial advisor for an electrical engineering company servicing the oil and gas industry, Stapleton Group successfully intermediated a refinancing between the defaulted borrower and its lender by:
- Negotiating a 120-day forbearance with the lender to provide sufficient time to refinance or sell the business;
- Conducting in-depth analyses of operations and historical financial performance, then developing realistic cash flow projections; and
- Strategically managing the business within the cash flow projections under the forbearance, while simultaneously pursuing a refinance or sale.
The Business Issue:
As the result of a precipitous drop in oil prices, demand for the company’s services from oil producers declined dramatically. Management’s expense reductions to right-size the business were not fast and deep enough. As a result, its senior lender lost faith in management’s financial projections.
Genesis of Stapleton’s Engagement:
The borrower engaged Stapleton as financial advisor to create a cash flow projection model and guide its shareholders through a refinancing or, if the refinancing failed, selling the business.
Obstacles and Stapleton’s Solutions:
- The borrower’s relationship with its lender was significantly strained.
- Stapleton immediately interceded, managing communications between the borrower and the lender.
- Stapleton restored credibility to the company’s financial information.
- Stapleton successfully negotiated a much-needed forbearance from the lender.
- Stapleton concurrently worked with a third-party investment banker to pursue a sale of the company if a refinancing was not achievable during the forbearance period.
- The company’s recent financial results had been negatively impacted by one engagement, for which it served as sub-contractor, due to failures by the general contractor.
- Stapleton analyzed historical job costs to identify and validate the financial impact of this non-recurring event.
- Stapleton adjusted the company’s cash flow projection to reflect the non-recurring event, providing a sound basis to negotiate a forbearance and, ultimately, refinancing with the company’s lender.