Financial Advisor to Bank regarding Luggage Wholesaler
Due Diligence, Strategic Plan
The Bottom Line:
Stapleton Group provided key information and advised its bank client on restructuring a $25 million line of credit to a luggage wholesaler. We uncovered the following information, enabling our client to successfully secure additional collateral and improve its recovery:
- The company’s projections dramatically underestimated the reserve for Returns and Marketing Allowances for several major customers, overstating Net Income and Cash Flow by 100%, or $1 million.
- Our assessment of collateral quality identified approximately $1 million of assets held for investment purposes that had no value.
- We discovered the purchase of a yacht by the sole shareholder for $700,000.
The Business Issue:
The company began experiencing large operating losses and became over-advanced on its loan.
Genesis of Stapleton’s Engagement:
We were retained by the company’s secured lender as its Financial Advisor to assist in restructuring the company’s $25 million line of credit.
Obstacles and Stapleton’s Solutions:
- Management was unwilling to discuss or provide information regarding the company’s agreement with Costco.
- Stapleton worked around management by befriending lower level accounting and sales staff to obtain agreement.
- Stapleton discovered that Costco did not always abide by its agreement governing purchases of product. Contrary to the provisions of the agreement, Costco insisted on unlimited rights to return product after the season and on excess advertising allowances.
- Company’s financial advisor was slow to prepare updated projections
- Stapleton worked directly with the company’s controller to build our own financial model.