Debt and Equity Solutions

It is often the case that existing lending arrangements are inappropriate for a company in a turnaround management or requiring a financial restructuring process. For instance:

  • Debt may not be able to be amortised limiting the value of the debt and company.
  • New financiers are willing to invest in the company but only if they are able to have priority security with respect to those monies.
  • Covenants (such as maintaining a benchmark EBITDA/interest ratio) are not achievable due to the current trading performance of the company.

Something has to give!

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Managing Short Term Executives

Recruiting a short term Chief Financial Officer is a necessity for many companies.
Interim appointments tend to work best on specific projects and tasks such as improving cash flow, managing a refinance, supporting a sale process and shutting down an operation.
How a board/directors engage, remunerate and direct short term and permanent executives is very different.

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Debt Capital Renegotiation

It is often the case that existing debt capital structures are inappropriate for a company, for instance:

  • Debt may not be able to be amortised limiting the value of the debt and company.
  • Covenants (such as maintaining a benchmark EBITDA/interest ratio) are not achievable due to the current trading performance of the company.

Where refinancing is not an option, the terms of the lending may need to be fundamentally renegotiated with respect to:

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Turnaround

Drivers of the requirement for a dedicated turnaround management process include:

  • Necessity for operational and management change to “fix” the company.
  • Limited management ‘bandwith’ to deal with the relevant issues.
  • Deteriorating financial performance.
  • Stakeholders losing trust in or no longer supporting the business.

Why go through a turnaround management process, is it worthwhile?

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Funding Levers

Being able to quickly pull funding and cash “levers” is important for all corporations and especially those with limited working capital, needing growth capital and/or experiencing under performance issues.

Here are 10 levers quickly able to be actioned to help provide a company with a finance “bridge” until a longer term and more sustainable capital structure is able to be put in place.

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Cash Flow Management

The ‘cheapest’ means of obtaining additional funding is extracting cash from the existing assets and operations of a business.

There are also significant advantages from good cash flow management:

  • Visibility on funding requirements.
  • Reduces debt and interest costs as free cash flow can be directly applied to funding.
  • Productivity and efficiency as less time and resources are spent on functions such as accounts receivable collection and warehouse costs for inventory.

The common ways to extract cash from a business are to:

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Pre Turnaround Checklist

Before you start a turnaround, planning is always important. You need to have a detailed plan and focus on executing it well.

Setting the right plan is imperative not just for achieving a successful outcome but also realising goals expeditiously and efficiently.

To help you get it right, here are 25 questions to consider before jumping into a turnaround process:

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Interim CFO Appointments

The urgent need to recruit a CFO is a common occurrence for many corporations with the exit of the incumbent often the catalyst to drive change or deal with complexities and problems confronting a business.

Unfortunately a desire from stakeholders to quickly find a CFO to deal with such issues does not accord with the reality of the recruitment market where finding quality candidates takes time especially with many better candidates being in existing roles.

The answer to this problem may be to source an interim appointee while searching for a longer term CFO.  Here’s some reasons to initially make an interim appointment:

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Informal Restructuring

The drivers for informal financial restructuring to ‘fix’ the balance sheet of a company include one of or a combination of the following:

  • Cash and liquidity becoming constrained threatening the viability of the business.
  • A company having underlying profitability but being unable to service and/or materially amortize its debt.
  • A need to reset the capital structure of a corporation. Often the capital structure doesn’t reflect the value, financial position or the requirements of the organization.
  • The desire from stakeholders to avoid an insolvency and the associated costs and value destruction. This is particularly prevalent to situations where the value of a company is manifested in its goodwill rather than tangible assets, for instance companies involved in the retail and financial services sectors.

What is required to achieve an informal restructuring?

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