Financial Turnaround Management and Debt Restructuring Services

In 1982 the client company was incorporated in Virginia by the 100% stockholder, who had a resume covering 20 years of security industry consulting.  The client company operated for the next eight (8) years providing physical security services for both commercial and government customers in the United States and several residential communities in Puerto Rico .  In 1990 100% of the stock to the original organizer's wife and the client company received the designation of Minority Woman Owned Business (MWOB) from the Small Business Administration.  The decision was made to use the MWOB designation only for the purpose of enhanced bidding opportunities.  It was  determined that limiting the client company’s bid submissions to small business restricted awards would “label” the company as small and potentially inhibit its growth.

By 1994 the client company had achieved a gross revenue level of approximately $6,000,000 and was realizing net profits after taxes in the range of $150,000 to $200,000 per year (approximately 2.5% to 3.0% of gross revenues).  The company had provided guard services to a Social Security Administration (SSA) facility until the recompete was set-aside as a small business award.    The client company agreed to enter into a teaming agreement with a minority owned and operated small business that had received the 8(a) designation from the SBA.  The company and its small business prime contractor teaming partner were awarded the SSA recompete and an escrow agreement was prepared so that payments from the SSA would be deposited into an account at NationsBank, with the small company’s receipts to be transferred to its asset-based lender and the client company’s cash receipts would be disbursed to its Line of Credit lending institution.  The escrow agreement was never executed and during 1995 the small company prime contractor was able to divert over $1.5 million of SSA payments that were due to the client company. The client company initiated legal action against the small company teaming partner, but the impact of the diversion was a resultant out-of-formula situation with respect to the client company’s borrowing base at its institutional line of credit lender.  The client company entered into several forbearance agreements with its line of credit lender, but it was unable to recover from the diversion resulting in the line of credit lender’s attempt to seize control of the client company’s operation.  In reaction to the aggressive collection action by the line of credit lender, the client company filed a voluntary petition of Chapter 11 bankruptcy in April 1996.  Marcher was contacted by bankruptcy counsel who requested that we meet with the client’s representatives and initiate (a) preparation of a cash collateral budget and (b) discussions with representatives of the institutional line of credit lender. 

Marcher quickly determined that a severe credibility gap existed between the lender and the client.  Nonetheless, Marcher had discussions with a special assets officer with whom we had a pre-existing relationship and reached agreement that provided for continued funding of payroll and payroll tax requirements, insurance maintenance and essential disbursements to maintain operations.  The agreement required (a) entry of a court order authorizing post-petition financing; (b) full repayment of all outstanding amounts within one month; and (c) strict signatory controls for all disbursements during the one month period.

Marcher made arrangements with a high cost asset-based lender and within one (1) month of the initial post-petition advances by the institutional lender the entire outstanding balance was repaid in full.  Within four (4) months Marcher was able to replace the original high cost lender with an alternative less expensive asset-based lender. 

Marcher analyzed the pre-petition operation of the client company using its Comparative Analysis of Operating Statements (CompOp) template.  The analysis provided a baseline of expenses which permitted the formulation of a financial restructuring plan.  Specifically, Marcher was able to identify areas of operations which could be more carefully monitored and cost reductions realized.  Through face-to-face meetings with the company’s customers, the client’s principal was able to assure the customers that the company would continue to provide professional and quality security guard services.  Those meetings and assurances resulted in almost no loss of revenue and, in fact, the company was actually successful in winning an additional $4.5 million per year in revenue.  Based on Marcher’s analysis of pre-petition performance and the client’s success in maintaining and actually increasing revenues, Marcher was able to prepare financial projections using Marcher’s Financial Projection (Fin Proj) template which became the basis for the Chapter 11 Plan of Reorganization.   In addition, Marcher implemented strict cash forecasting and monitoring using its Cash Flow Projection (CFlo Proj) template.  This was essential to a successful financial restructuring.  The client’s Chapter 11 Plan of Reorganization was confirmed during May 1997 - the case lasted 13 months.  During the pendency of the case, the company realized annual revenues in the range of $12 million - resulting in an average outstanding balance on the asset-based line of credit of approximately $750,000.  The annual costs of financing were approximately $350,000 or 46% annual fees.   

Marcher continued to provide financial oversight services for an additional six (6) months during which we continued to stress the necessity of strict cash management including cash forecasting and monitoring.  We were instrumental in interviewing and hiring a Chief Financial Officer who installed a new accounting software.  By 1999 the company had fully implemented its Chapter 11 Plan of Reorganization and had increased its revenues to approximately $17 million with a net after tax profit of approximately $500,000 (3% of revenues).