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Lender Completes Favorable Sale Without Bankruptcy

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Home·Lender Completes Favorable Sale Without Bankruptcy

The Situation

Vertically integrated poultry producer and processor – $600 million in annual sales and 2.5 million chickens processed weekly. Engaged as a financial advisor to a lender group consisting of 10 lenders. $130 million debt. Cash flow losses were huge as corn feed costs had doubled, and chicken prices were down due to industry over-capacity. The lender group had funded $20 million more to bridge to a sale. The plan was to sell the company, but due to the unfavorable industry conditions, only one foreign strategic buyer showed interest.

  • The industry was adversely impacted by several years of increasing corn and soybean meal costs, combined with reduced chicken pricing due to excess industry capacity, resulting in significant operating and cash losses of over $1 million per week.
  • Competitor bankruptcies were frequent over the previous several years.
  • Total debt $130 million, with the value of the business less than the debt. Lenders were the only available financing source. It is very difficult to shut down operations quickly due to the millions of live chickens that require daily feeding.
  • The lender group has limited alternatives for exiting – Chapter 11 costs would reduce the going-concern recovery by $20 million or more, and liquidation would be very risky.
  • Negotiations with the “only” buyer had been stalled over the issue of how much the lender group would accept as a payoff on their loan.

How We Advised

  • Developed analysis of recovery alternatives – out-of-court sale/Chapter 11 363 sale/orderly liquidation and advised lenders regarding best recovery.
  • Monitored cash management, check float, and overdraft on a daily basis and identified opportunities to conserve liquidity and minimize cash burn, and advised the bank group regarding necessary funding needs.
  • Monitored raw materials supply to ensure there were no adverse disruptions to the business during the sale process.
  • Worked with counsel to develop a payoff amount acceptable to the lenders that ultimately unlocked the negotiations with the seller.
  • Sale of business within 5 weeks of our experts’ involvement at a recovery value of at least $20 million, better than any alternative scenarios.
  • Reduced lender funding by $3 million of previous cash funding, which further improved loan recovery.
  • Contributed to the preservation of over 3,000 jobs in two rural communities.

Key Contact

Dan F. Dooley, CTP 
Senior Managing Director 
Strategic Advisory Practice 
+1 603 660 8952 
[email protected] 

 

Mark J. Welch, CPA, CTP 
Senior Managing Director 
Strategic Advisory Practice 
+1 412 498 8258 
[email protected] 

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