Friday, March 11, 2005

I Think You Need to Restructure............but, I Don't Want To Restructure!

Nobody WANTS to restructure in as much as nobody WANTS a root canal.

But sometimes you need one!

Just finished reviewing the financial statements of a growing (aka on the brink of financial ruin) manufacturing concern. The company generated solid profits on paper but the balance sheet was a nightmare.

Basically these guys had sunk about 6 million in cash into another project they were working on, defaulted on all of their loan covenants and now had to come up with about 4.9 million dollars to refinance their working capital and term loan facilities.

On top of this the company owed its suppliers a tad under $4 million...............

Problem is that the company only has about 6 million dollars worth of assets (and I am being generous here). And assuming that you can leverage your assets 70%, we are looking about about $4.2 million dollars to pay off the creditors...............and this ignores the capital need to run the business on a day to day basis

So the company needs to work something out with the creditors or put some more cash into the company.

But the company doesn't want to restructure despite the fact that no one will lend them dollar one in their current state.

So they can keep flogging a dead horse or bite the bullet and take some painful action. Anyone who has spent anytime in business has been in a similar situation.

At this point in time, this company has decided to keep riding their dead donkey, hoping to get away from their creditors. The problem is that dead donkies don't run very fast!


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