Case Study: Chief Restructuring Officer Military Uniform Apparel Manufacturer

Cedar Croft Consulting, in its capacity as Chief Restructuring Officer, optimized manufacturing operations and facilitated the acquisition of the company by a strategic buyer, ensuring continuing operations and the employment of 250 workers.

The Company

This apparel company, located in Southeastern US and Puerto Rico, designs, manufactures, and sells military and law enforcement uniforms through government contracts and other distribution channels. Cedar Croft was referred to the company by its senior lender.

Situation

The Company incurred three years of operating losses due to poor costing information systems, unprofitable government contracts, and manufacturing inefficiencies. The company was recently awarded two new government contracts contributing to a sales order backlog of $200 million, but lacked the working capital to fulfill the orders.

The shareholders were unable to raise the capital necessary to fund operations, and trade payables increased. The company used accounts receivable collections to pay suppliers and fund operating losses, contravening the loan agreement with its senior secured lender.

The Company entered into a forbearance agreement with its senior lender, and was required to engage a Chief Restructuring Officer. Cedar Croft Consulting was engaged by the Company to perform this role.

Cedar Croft’s Approach

Cedar Croft’s team of financial and manufacturing experts immediately took control of all spending and cash management, conducted a review of the Puerto Rico plant, confirmed and quantified the magnitude of the manufacturing deficiencies and the profitability of products in the sales order backlog. After this initial assessment, and considering the liquidity issues facing the Company, Cedar Croft recommended a going-forward strategy that involved scheduling production for only profitable products, overhead cost reductions, and the sale of the business through a bankruptcy process.

Engagement Key Steps

  1. Negotiated revised delivery dates for the key government contracts.
  2. Negotiated purchasing terms with key suppliers to ensure the fulfillment of products in satisfaction of the key government contracts.
  3. Production scheduling was prioritized and optimized to focus on the most profitable product lines, and to fulfill the revised delivery dates for the key government contracts.
  4. An investment banker was identified and engaged to conduct a sale of the business.
  5. Appropriate debtor’s bankruptcy counsel was identified and engaged.
  6. Revised the Company’s corporate governance structure and engaged independent directors to serve on the Board.
  7. A communication protocol was established with the key stakeholders to provide ongoing, updated financial and operating information.
  8. Negotiated revised forbearance agreements with the senior lender to secure financing for ongoing operations.
  9. Assisted in analyzing and negotiating offers from prospective purchasers of the business.
  10. Facilitated the due diligence process of prospective purchasers.
  11. Performed ongoing activities as Chief Restructuring Officer, including managing cash flow and all operating activities.

Results

  1. The Company reached positive monthly EBITA for the first time in 3 years.
  2. The Company was sold through a Section 363 bankruptcy process to a strategic buyer with the ability to fulfill the key government contracts.
  3. Under new ownership, the Company continued operations and preserved employment of 250 workers.