Restructure and Plan of Exit
Gift Basket Business – Restructure and Plan of Exit for Lender (2019)
Outcome:
Line of Credit completely Paid off (over $7MM)
Primary Services & Tools used:
Restructure / Negotiations with Primary Lender | Detailed Forecast, Cash Collateral Budget, Borrowing Base Certificate
Turning Point Team:
Alan Chaffee, Eric Camm
Turning Point was referred in to assist a business that sold premium Gift Baskets online, by a national bank that needed current financials, a detailed forecast, and a plan of restructure to get comfortable funding in to a stretched collateral base.
Overview:
The business had a long history of profitability but struggled when the founder stepped out of day to day operations due to family health reasons. The result was that the business had drastically changed its business model, moving away from B2B and focusing on B2C, and had suffered several years of financial losses. These losses eroded the company’s working capital and landed the business in its lender’s workout group.
The Company was doing approximately $38MM a year in revenue. In the preceding calendar year, it had lost $2MM and was facing a significant shortfall of working capital. The Company’s business model was very unique in that 45% of its annual revenue came during the Christmas Holiday Season. This created challenges in funding the business, however, as the Company needed millions of dollars in working capital leading up to the holiday season, in order to acquire and assemble the inventory necessary to execute a successful holiday season.
Actions:
Turning Point immediately built a comprehensive and detailed Financial Model that allowed the lender to gain comfort around the Company’s ability to pay off its line of credit after the holiday season. The model included significant monthly expense reductions that Turning Point initiated, as well as a capital infusion from the equity holders that helped strengthen the balance sheet.
Outcome:
With lowered expenses and a detailed forecast, Turning Point negotiated with the lender to forbear on the Company while continuing to lend as the business built up its finished goods inventory in preparation for Christmas. Over the course of 6 months, the lender increased its commitment from $2.5MM to over $7.5MM, allowing the business to ramp up and execute on its holiday season.
Key Takeaway:
In December, the company was able to pay off the lender’s line of credit in its entirety and the lender exited the credit.
