MAC Resource

Banking is Your Business

  By Edward T. Paslawski, First Dunbar Securities Corporation

  Manufacturing company owners and managers spend a great deal of time investigating their competition, markets, and resource costs, but very little time considering their lending relationships. Most business owners who borrow consider their lending options only twice during the term of their loan: 1) when the loans are due to expire, and 2) when they find themselves in default and their formerly-friendly bank wants its money back.

Refinancing and Restructuring

“When you need it” is absolutely the wrong time to start thinking about money. We strongly recommend proactive planning with respect to your existing financing. In the first case cited above, the borrower may be able to significantly reduce borrowing costs, obtain better repayment terms, or access more funding due to improving bank market conditions. In the latter case, it is absolutely necessary to plan ahead if there is even a remote possibility of a covenant or payment default. “Manage the process before it manages you.” The sooner you deal with an anticipated adverse event, the better you will be able to control the situation. Banks just aren’t nice anymore.

By way of example consider the following:

  A $100,000,000 revenue New England based manufacturer was in technical (covenant) default of its bank loans and in a difficult position to refinance based on three poor years caused by the recent recession. The owner and his CFO first thought they could negotiate their way out of the default but due to the continuing recession were unable to meet their promises and satisfy the bank. Their efforts to refinance failed and further frustrated their lenders. Tensions between bank and borrower grew until the banks finally made demand. The owner finally sought professional help and after a relatively brief period of time we were able to structure a deal with two new lenders. The restructuring allowed the company to raise $60,000,000 in funding consisting of $25,000,000 in revolving senior debt, a $5,000,000 unsecured term loan, and a $30,000,000 sale leaseback on their real estate despite having a loss and their lowest EBITDA in recent history. The point of this example is to show that due to diminishing regional lending choices you need to look beyond your neighborhood for the right funding package.

Retention of an Investment Banker serves several purposes: 1) it allows you to run the business while they seek a financing remedy, 2) they are closer to the lending market since it is their business to source funding, 3) they provide a buffer between you and your present lender, and 4) they can often create competition among lenders for your lending business and lower your borrowing costs while obtaining better terms.

About First Dunbar

Located in Boston Massachusetts, Fist Dunbar is a full service NASD licensed Broker Dealer. First Dunbar’s Investment Bankers specialize in management buy-outs, inter-generational buy outs, recapitalizations, refinancings, and restructurings in the manufacturing and service industries. For more information, contact Michael Prior, Senior Project Manager, MassMEP, (508) 831-7020, [email protected].

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