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Creditor Composition for Retailer: Working through Liquidity Issues
Situation:
The client, a retailer of highly seasonal products with fifteen locations across the country, had experienced significant losses in the previous year. Payables to almost all key vendors and landlords were stretched well beyond terms. Seasonal build up of inventory was financed by an asset-based lender who was becoming increasingly nervous about the client's ability to fund operations and make payments to vendors during slow periods of the year. Without additional capital or concessions from either the vendors or the asset-based lender the client would not be able to purchase the inventory needed for the upcoming busy season.
Task:
LMG was engaged to develop a workout plan and to help negotiate an agreement with the company's asset-based lender and key suppliers.
Action:
LMG helped develop a plan to improve liquidity that incorporated significant changes to the operations including closing unprofitable locations and consolidation of administrative and distribution activities. A forbearance agreement and other modifications to the company's working capital facility were negotiated with the company's asset-based lender and extended payment plans were negotiated with the company's key vendors. LMG segregated vendors into classes based upon the amount owed and the critical nature of the product or service supplied. A repayment plan for the balance owed was developed for each of these categories and presented to the vendors within each class.
Result:
The forbearance agreement with the asset-based lender resulted in additional liquidity as did the extended payment terms agreed to by key vendors. Of the nearly $8 million of trade debt, approximately 65% in dollar amount accepted the deferred payment plans. The increased liquidity resulting from these actions enabled the company to continue operations and purchase the inventory needed for its upcoming busy season.
