Cost Reductions Allow Recapitalization

Challenge

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Custom cabinet manufacturer. Sales of $14 million. Bank Debt of $5 million.170 employees. Serving new home construction and remodeling.

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• Company was acquired near peak of home-building market.
• New owner/manager, a father and son team, did not have meaningful industry experience.
• As the housing market began a dramatic decline, revenues fell from $20 million to below $14 million
• Highly-leverage balance sheet soon became over-leveraged, management was not effecting change in cost structure.
• The company began defaulting on senior debt covenants.

Solution

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• MorrisAnderson hired as Financial Advisor and provided an initial assessment that delivered the “facts” to the lenders, including a rolling 13- and 52-week cash forecasts and a recommended work plan.
• Executed the work plan to reduce fixed costs, optimize working capital, and implement a reporting process.
• Solicited prospective sources for re-financing and worked closely with sub-debt lender for solutions.

Results

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• Reduced fixed cost structure and working capital, re-aligned organizational duties and management responsibilities.
• Increased cash conversion cycle by reducing inventory and working closely with customers and vendors.
• Further decline in the industry and economy resulted in continued challenges with (a) financial performance and (b) refinancing.
• Due to implementation of work plan, combined with reliance on the reporting implemented by MorrisAnderson, the senior lender continued to forbear.
• Ultimately the company was able to recapitalize with its sub-debt lender executing warrants which initiated a change in ownership and allowed a recommended change in management to occur.