MorrisAnderson Negotiating a Debt Restructuring and Refinancing

Education & Non-ProfitsRefinancing & TransactionsTurnarounds & Restructuring

25M

Annual Sales

58M

in Debt

Jewish Community Center, St. Louis Missouri

Challenge

Multi-location community centers. $25 million sales. $58 million debt incurred to build state of the art facility and to refurbish existing facilities.

  • Donations and returns on investments in endowments (primary source of repayment) had fallen significantly below projections.
  • 10 donors accounted for more than 90% of the capital raising capacity.
  • Incurred debt to build/refurbish facilities with plan for continued donations and investments in endowments.
  • Recession resulted in a declining trend that underachieved projections for operating revenues, donations, and loss of principal endowments; the decline in interest rates resulted in lower returns on remaining investments.
  • Senior lender filed lawsuit after default on payment and unsuccessful attempts to discuss restructuring the debt.
  • Structure of debt was multi-faceted: line of credit, bonds, interest rate swap agreement and letter of credit.
  • Additional factors more unique to non-profits: significance reliance on cash from donors; inherent absence of equity owners; major donors impact the situation and solutions.

Solution

  • Ensured management was teamed with financial, legal, and public relations advisors to consider all options.
  • Ensured restricted assets were appropriately and distinctly separated from unrestricted assets.
  • Developed long-term cash flow forecast to illustrate feasibility of options with management, key donors, and lender.
  • In each scenario, ensured all stakeholders were identified and roles/impact were considered.
  • Led negotiations with the lender, obtained stand-still on litigation while negotiations continued in good faith.
  • Provided assessment of the situation along with options and recommendations for attainable solutions.
  • Ensured the Board was informed and major donors were actively engaged in exploration of scenarios.

Results

  • An out-of-court resolution was devised that was satisfactory to the lender and the client.
  • The debt was restructured so as to allow the lender to exit the debt.
  • All of the facilities and services continued uninterrupted during this process.
  • Secured lender recovered $45 million of $58 million, significantly above lender valuation.
  • Client paid majority of settlement in cash due to secondary fundraising campaign and new bank loan.

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