Cedar Croft Consulting, in its capacity as financial advisor, structured and secured a $17MM revolving credit facility for a family-owned company, in Los Angeles, California, that required financing for a turnaround of its organization, and without the need for shareholders to provide personal guarantees.
Based in Los Angeles, this international company distributes and sells ceramic, granite, marble and limestone tiles and slabs to wholesale and retail customers through distributors, catalogs, and showrooms. The company services the luxury tile and stone market for new home construction and remodeling, with its primary clientele consisting of affluent homeowners, interior designers, contractors, fabricators, and builders who service the affluent community. This family-owned business was founded in 1952 and is now managed by second generation family members.
Although historically profitable, the company experienced significant operating losses in the previous two fiscal years. Its current senior lender reacted by reducing availability under its existing asset-based credit facility and required the shareholders to pledge personal assets to secure adequate financing for the company’s ongoing operations.
The company engaged a third-party consultant to conduct a strategic review of its organization and prepare a turnaround plan. It was determined the existing lender would not provide the financing required to support the necessary turnaround, and alternative senior financing was required. As the shareholders were dealing with estate planning issues of the founder, it was their desire to secure a senior credit facility that did not require the personal guarantees of the shareholders.
Cedar Croft Consulting was engaged to secure the necessary financing for the company.
Cedar Croft’s Approach
The engagement was managed entirely by Patrick Walsh, Cedar Croft Consulting’s President, and Managing Director. Once engaged, Cedar Croft reviewed the company-prepared business plan, financial projections, historical financial information and existing lender arrangements, held discussions with management and staff, developed a loan structure to support the business plan, and drafted a proposed lender’s term sheet.
A detailed Confidential Information Memorandum (CIM) was prepared in support of the financing request, and an electronic data room was created.
Based on Cedar Croft’s knowledge of the lending community in the middle market, potential lenders were contacted by telephone to discuss the situation on a “no-name” basis and gauge the interest of the lender.
Lenders who expressed an interest in pursuing the transaction were asked to sign a non-disclosure agreement and were then provided with the CIM and access to the data room.
Cedar Croft facilitated discussions, meetings and information exchanges between prospective lenders and the company’s management and staff. Cedar Croft negotiated and secured term sheets from selected lenders and recommended the most appropriate choice for the company.
Cedar Croft then coordinated the due diligence and closing with the selected lender.
Engagement Key Steps
- Within two weeks of being engaged, a draft CIM was prepared, and Cedar Croft Consulting reached out to twelve potential lenders.
- Within four weeks of being engaged, non-disclosure agreements were signed with fourteen interested lenders.
- Serious interest was expressed by six potential lenders. The company received three term sheets within ninety days of commencement of the process.
- Cedar Croft analyzed all term sheets and discussed/negotiated with prospective lenders on key deal points.
- Cedar Croft recommended the most appropriate lender to the company, and a term sheet was signed.
- Cedar Croft coordinated the due diligence process with the selected lender, including the completion of inventory and real estate appraisals, field exams, and legal documentation.
- Ongoing communication with the company’s existing lender allowed for the extension of the current facility, under reasonable terms, to facilitate the time required to close the new credit facility.
- A $17MM revolving credit facility was secured from a new lender, allowing the company to extinguish is existing senior indebtedness, and provide adequate financing to execute its business plan.
- The new credit facility did not require the personal guarantee of shareholders.