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Working with Distressed Investors

default author logoBy Bill Drmacich

We’re not talking about investors that are distressed, but rather, investors who don’t shy away from investing in a company that has gone through tough times. Over the years, Capital Business Credit (CBC) has had considerable success executing deals with Private Equity Groups that aren’t afraid to get their hands dirty with turnaround situations. Like these Private Equity Groups, CBC can take a difficult situation and apply some creativity to customize a facility that will ultimately support a company’s growth or improvement.

When looking at a deal that may seem difficult, CBC considers the following factors:

1. Does the company have an investor who is hands-on and willing to support the business in a variety of ways (not just with cash)?

2. Is the business plan achievable?

3. Does the company have an abundance of assets?

4. Does the company have a strong management team of people who know exactly what went wrong and is going to all necessary lengths to resolve the issues?

If these factors are in place, then CBC can likely develop a financing solution to meet the company’s needs.

Take this example of what we can do and how CBC can add value:

CBC was working on a $10 million financing deal with a large equity group headquartered in the Southeast. The deal was fairly complex, but the most interesting condition involved forbearance – the company was in forbearance with its existing senior lender as a result of covenant violations and subsequent declaration of an Event of Default. Our loan facility was to supplement that lender’s arrangements. Banks generally have difficulty lending into such a scenario – we studied the situation and concluded that we were not only ok with the terms of the forbearance, but we actually required the forbearance in our deal terms. In this case, none of the existing lenders to the company were able to receive cash payments except CBC, preserving precious cash flow for the client. In most cases, when the senior debt is in default and the lender creates the forbearance, it stipulates that cash interest payments cease to all debt instruments.

Distressed assets do not mean doomed assets and often times asset-based lending products can aid in turnaround efforts.