Upgrading Workout Loan Credit to a Line Credit
40
Annual Sales
8
Debt
Engineered Fluids, Centralia IL
Challenge
- Well-established 40+ year manufacturer of heavy industrial machinery, customers primarily consist of government municipalities, typical build times of 4-6 months, fixed price contracts. Credit facility consisted of revolving line of credit; 20- year relationship with lending bank.
- Supply Chain disruptions extended production times, negatively impacting absorption of fixed overhead; significant increases in costs of labor and materials reduced gross profit. The deterioration of financial performance resulted with default of financial covenants. Absent a substantiative plan to cure, the credit was moved to bank’s special assets department.
- Bank lender provided a forbearance with the condition to engage an independent consultant to assist the borrower in returning the credit to compliance.
Solution
- MorrisAnderson was selected by the Company as its financial consultant
- Assessed profitability and cash requirements of existing contracts, assessed feasibility of obtaining price increases. Reviewed relationships and logistic status with suppliers.
- Reviewed bid process and made recommendations to adjust costing calculations.
- Assessed manufacturing labor scheduling and efficiencies; assessed staffing for administrative positions; provided recommendations in several areas to improve productivity and cost efficiency.
- Established 13-week cash flow forecasting and reporting.; established rolling 4-Quarter financial forecast including Income Statement, Balance Sheet, and Cash Flow that included measurements of financial covenants.
- Prepared and presented Plan to lender that illustrated a return to credit compliance by profitability and cash flow improvements to the business.
Results
- Lender agreed to extend the forbearance commensurate with the Plan’s financial forecast and timeline
- Actual results exceeded the Plan’s projections and returned the credit to compliance which warranted moving the “rehabilitated” account out of the bank’s special assets department back to the line.
