A major UK offshore oil service group was sinking beneath the waves. It was highly geared, suffering from the impact of a collapsed oil price: in a major cash crisis, with breaches in company covenants; run by a management constantly firefighting and facing imminent prospect of receivership.
A total refit was required. Together with management, we developed a business plan which quantified the level of funding required. We worked with the group's merchant bankers in developing a plan of reconstruction which included capital reduction; debt conversions; arrangements with major companies and an underwritten rights issue. We assisted in negotiations with the major lenders and creditors in implementing the restructuring proposals and helped the new management team to develop a long-term strategy and dispose of non-core activities.
That placed the company on an even keel. All lenders to the group accepted the restructuring proposals. New equity was introduced and medium-term financing facilities obtained. The balance sheet was restructured and the ability to pay dividends restored. We seconded senior financial managers to provide continuing support to management. The group was restored to profitability within 12 months with maintainable liquidity and new management is now developing opportunities in core business areas.
On the complex question of operating efficiency, there is often room for an outside agent to bring a clear view. Managers may not be skilful enough to manipulate a firm's assets efficiently and may also have been too close to the running of the firm for too long to be able to bring clear and objective analysis to bear. Expensive locations, poor productivity, high labour costs, poor distribution and arrangements with customers and suppliers may all be things which can be better organized with the benefit of an expert's fresh viewpoint.
In the face of cash crisis, the question of disposals always arises. Should the company sell its profitable trading division, or can it close down the disaster areas and trade its best asset on? How can a firm which is known to sell out now and raise a modest amount of cash or hang on in the hope that an asset or subsidiary will be worth much more in the future, will clearly be influenced by the appetite for risk of different creditors and shareholders. The issue is greatly complicated when those parties hold different opinions among themselves. In practice, all options have to be kept open until market interest has been assessed.
In most cases, recovery expert find that poor management is usually responsible for a company's plight. Not surprisingly, the company's existing directors are often early candidates for disposal, particularly at chief executive or finance director level. It may be that a firm has been built up by one individual who has refused to delegate decisions as the company has grown and is unequal to the task of turning it around once it is in difficulties or if the finances of the group are simply out of control.
Managing the different stakeholders of a distressed business can be a major task in itself. Recovery experts admit it cannot always be done without a certain amount of bullying. The companies and shareholders may be at loggerheads, while holders of junior mezzanine debt may feel aggrieved that they are being left out. The issue has become aggravated, in some recent examples, by the tendency of aggressive corporate borrowers to syndicate debts among a wide range of lenders, some of whom know relatively little about the group, its markets, products or operations.
A total refit was required. Together with management, we developed a business plan which quantified the level of funding required. We worked with the group's merchant bankers in developing a plan of reconstruction which included capital reduction; debt conversions; arrangements with major companies and an underwritten rights issue. We assisted in negotiations with the major lenders and creditors in implementing the restructuring proposals and helped the new management team to develop a long-term strategy and dispose of non-core activities.
That placed the company on an even keel. All lenders to the group accepted the restructuring proposals. New equity was introduced and medium-term financing facilities obtained. The balance sheet was restructured and the ability to pay dividends restored. We seconded senior financial managers to provide continuing support to management. The group was restored to profitability within 12 months with maintainable liquidity and new management is now developing opportunities in core business areas.
On the complex question of operating efficiency, there is often room for an outside agent to bring a clear view. Managers may not be skilful enough to manipulate a firm's assets efficiently and may also have been too close to the running of the firm for too long to be able to bring clear and objective analysis to bear. Expensive locations, poor productivity, high labour costs, poor distribution and arrangements with customers and suppliers may all be things which can be better organized with the benefit of an expert's fresh viewpoint.
In the face of cash crisis, the question of disposals always arises. Should the company sell its profitable trading division, or can it close down the disaster areas and trade its best asset on? How can a firm which is known to sell out now and raise a modest amount of cash or hang on in the hope that an asset or subsidiary will be worth much more in the future, will clearly be influenced by the appetite for risk of different creditors and shareholders. The issue is greatly complicated when those parties hold different opinions among themselves. In practice, all options have to be kept open until market interest has been assessed.
In most cases, recovery expert find that poor management is usually responsible for a company's plight. Not surprisingly, the company's existing directors are often early candidates for disposal, particularly at chief executive or finance director level. It may be that a firm has been built up by one individual who has refused to delegate decisions as the company has grown and is unequal to the task of turning it around once it is in difficulties or if the finances of the group are simply out of control.
Managing the different stakeholders of a distressed business can be a major task in itself. Recovery experts admit it cannot always be done without a certain amount of bullying. The companies and shareholders may be at loggerheads, while holders of junior mezzanine debt may feel aggrieved that they are being left out. The issue has become aggravated, in some recent examples, by the tendency of aggressive corporate borrowers to syndicate debts among a wide range of lenders, some of whom know relatively little about the group, its markets, products or operations.
