The Bottom Line:
After taking possession of an oil & gas service provider as receiver, Stapleton Group maximized the recovery for the company’s multiple lenders and preserved the business as a going-concern by:
- Quickly negotiating a takeout of the company’s senior secured lender;
- Increasing cash flow by strategically reducing payroll and negotiating discounts from vendors;
- Developing cash flow projections and managing the business within the new borrowing base resulting from the refinancing; and
- Negotiating the sale and financing of the company as a going concern, thereby achieving a recovery exceeding liquidation value and saving jobs.
The Business Issue:
The company provided wireline and oil testing services for oil wells from offices in Pennsylvania, Texas and California. Management failed to forecast a severe decline in demand for its services during a lengthy oil glut, causing severe cash flow shortfalls. The company’s liquidity problems were exacerbated by a failed $7 million investment in a consortium to produce and sell oil in Columbia. It was in financial default with its senior lender, one of four lenders to the company, and the bank assumed liquidation was the only solution.
Genesis of Stapleton’s Engagement:
The court appointed Stapleton as receiver to take possession and monetize the borrower’s assets for the best possible recovery for its four lenders.
Obstacles and Stapleton’s Solutions:
- The company had a significant payroll-related liabilities (payroll, accrued and unpaid vacation, under-funded 401k) and no cash-on-hand.
- Stapleton quickly negotiated a short-term loan with a third party (“Bridge Lender”), subordinated to the senior lender, to cover immediate payroll and other operating expenses.
- Stapleton administered and paid wage claims in accordance with California Code of Civil Procedures Section 1204, preserving significant cash collateral for the lender and reducing the risk of future costs and litigation for employee claims.
- The company was illiquid due to poor operational protocols and insufficient accounting staff.
- Stapleton identified the sources of the company’s problems and deployed creative strategies to restructure the business.
- Stapleton engaged a third-party to manage A/R invoicing and collections, significantly improving cash flow.
- Due to the company’s failed attempt to refinance its senior debt, the bank presumed liquidation was the best solution.
- Stapleton successfully negotiated a guaranteed auction value with the Bridge Lender and drew down on the guarantee to fund operations.
- Stapleton subsequently negotiated with the Bridge Lender and company’s principals to take-out the senior secured and equipment lenders.
- Stapleton pursued a sale process, successfully negotiating an asset sale with the acquirer hiring the company’s employees, including its principals.
- The company’s Columbian operating subsidiary potentially would recover in 1 to 2 years, complicating the bank’s take-out.
- Stapleton ensured the bank’s security interest in the subsidiary would be preserved post take-out, contributing to the successful refinancing.