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Case Study: Work Out and Investment Banking Assignment

Stonegate was retained by a holding company to respond to its financial challenges, caused by an overly aggressive acquisition program financed largely with senior debt, which had culminated in the company’s lenders declaring their loans to be in default. The holding company owned four distinct operating businesses, each a niche manufacturing company, in different locations and managed by different personnel.

The banks wanted to immediately liquidate the businesses because they were significantly cash flow negative. Had they pursued that tack, the banks would have realized approximately $7 million on their $20 million loan. Stonegate persuaded the banks to enter into a forbearance agreement which allowed the businesses to be managed for positive cash flow and to be subsequently sold through an aggressive marketing effort.

Stonegate took the position as the Chief Restructuring Officer and had complete authority over all disbursements and purchase orders. During the restructuring phase, Stonegate managed the four businesses to generate $1.5 million of cash for the banks.

Subsequently, each business was marketed for sale. Through the four sale transactions, including selling two business that were still cash negative, another $13.5 million of cash was generated, net of all investment banking and transaction fees. The sales efforts required creative marketing including finding a strategic European buyer for one of the businesses. One of the businesses was sold through a bankruptcy process (section 363 sale) in order to rid the business of asbestos liability claims. Stonegate oversaw the operating activities of the businesses while managing each of the sale processes.

Through Stonegate’s efforts, the bank realized $15 million of recovery within 9 months and each of the businesses continued in operation, largely with the same employee and customer base. The banks realized over double what they would have had the company not retained Stonegate.

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