SEWN Knows: Alternative Financing
A Manufacturer had been referred to SEWN by a local Banker who stumbled upon the situation while out prospecting for new business. When the Company connected with SEWN it had approximately 45 days left on a Forbearance Agreement and was on a path to either a Foreclosure, Chapter 11, or Chapter 7 event with its workforce at risk.
The Company had violated certain loan covenants and failed to fulfil its contractual agreement with its Bank. The Company was running extremely tight on cash with no access to additional working capital as the Bank shut down its access to its line of credit (LOC).
The Bank's lending package included a Commercial Mortgage, LOC and Term Debt, all of which needed to be refinanced. The Company had a term sheet addressing the LOC and Term, however, after SEWN’s analysis, that offering was not a realistic alternative. The financing structure required was very specialized due to the nature of the collateral pool and the reliance on Term Debt vs the Accounts Receivable and Inventory Levels. SEWN recognized that an asset based lender (ABL) would be required due to the flexibility needed and the short time period in which a deal needed to be completed. The term portion was much larger than the working capital component and the overall dollar amount was on the smaller side in the lending world. This situation required a specialized lender willing to enter a highly leveraged situation with a lopsided structure willing to offer moderate risk pricing.
SEWN was able to identify a financing Company that had a product that met the requirements of the situation and was able to help put together a deal that was fair in pricing and structure. Additionally, the company had the ability to transition to conventional bank financing w/o a prepayment penalty once it returned to a stronger position.
The deal, in cooperation with the Company’s Bank, was completed within a 55 day window and the Bank was paid out in full. The deal created additional day one working capital availability allowing the company to move forward.
The situation is stabilized for now, but SEWN’s work is not done.
If your company or one you work with is in a similar situation, contact SEWN to see how we can provide stabilization and plan forward.