Company Needed Debt Refinancing
Challenge
An importer / distributor of hand-held electronic products was being asked to leave a community bank as the company was in violation of a financial covenant and operating under a forbearance agreement. The owner continued to grow the business making the situation even more tenuous as the lender began to curtail advances and the business was having difficulty paying their vendors. Management was concerned that their reputation would be permanently damaged if they did not obtain financing that addressed the needs of this growing company.
Solution
Upon an initial review of the situation, the GCA team met with the incumbent lender requesting additional time to bring in replacement financing. After getting some additional time to accomplish the refinancing the team met with the owner and the CFO to develop a strategy that would make this company more attractive to other lenders. After considerable debate management agreed to take a fresh look at the business and decided to increase prices going forward. The immediate impact was a slowdown in sales but the improved gross margins that will serve the business going forward.
As the business was implementing the new pricing policy and sales growth began to slow, the GCA team went to market to refinance the company. Several lenders made proposals, management decided to work with an alternative lender that provided a larger credit facility with greater flexibility and no constraining financial covenants. Although sales have slowed, profits increased substantially and the company’s valuation increasing so they are now considering bringing in additional capital for the future expansion of the business.