Private Plastics Manufacturer
Situation
This privately held company -- headquartered in Maine -- generated $22 million of revenue from two product lines. The company’s plastic netting was used in applications from grocery packaging to erosion control, while applications for its custom extruded profiles ranged from big box retail bumper protection to furniture and marine trim. The company was acquired in a leveraged buyout by two private equity firms in 1998.
While the market was strong and the company was able to sell out existing capacity, manufacturing problems prevented the company from filling all of the orders it was taking. Cash flow became severely negative, and the company began consuming LOC availability to fund operations. Saddled with $10 million in senior secured debt (acquisition/revolving LOC) and $6 million in subordinated debt, the company was no longer able to meet its fixed charge requirements. The situation was aggravated by a precipitous drop in sales volume resulting from the economic downturn in the second quarter of 2001. Recognizing the growing level of concern at the lenders, the board sought an experienced turnaround firm that could evaluate the strategic options, advise the board and implement a turnaround plan.
CRP’S Approach
CRP was engaged by the company in August 2001 to assess the business and deliver a report to the board and senior/sub lenders giving specific recommendations for a financial and operational restructuring. A thorough but accelerated three-week assessment produced a turnaround plan that included the restructuring of the subordinated debt, overhead cost reductions and one-year forbearance of the senior debt. Additionally, CRP took on the role of interim president and CEO to manage implementation and stabilize the company. Moving quickly, CRP set out to implement cost reductions, rationalize product lines, improve production capacity, implement new management tools and incentive packages, and manage trade vendors and daily cash.
Results
- CRP’s quick and thoughtful evaluation, and subsequent restructuring plan, provided the necessary credibility to bridge the gap between the debtor and senior creditors, establishing confidence behind the plan.
- The company turned cash-positive 60 days after engaging CRP.
- Production output from critical lines significantly increased within 90 days, allowing the company to achieve EBITDA levels sufficient to cover fixed charges.
- CRP and management were able to stabilize the situation and implement critical tools and controls that became the cornerstone for the ongoing management team.