Case Studies
National High-End Luxury Furniture Retailer
At the time of our appointment, the Company was facing a liquidity crisis. The cash forecast indicated the Company would run out of money in three weeks. Management had made numerous operational mis-steps and the relationship with its lenders had become completely dysfunctional. Investment Bankers had been retained to refinance and restructure the Company’s capital structure, but they needed time, to make it happen. We created that runway. Faced with this looming liquidity crisis, we immediately employed turnaround and crisis management tools and tactics which stabilized operations, increased sales volumes and reduced costs. Communication with the Company’s lenders was established through weekly status calls. We crafted and negotiated a forbearance agreement to provide stability while the refinancing effort was underway. The refinancing was successfully achieved in four months. During our time as CRO the Company went from facing a cash crisis to having $15 million on hand at closing. By working closely and collaboratively, the professionals on this engagement achieved a rare retail restructuring success.
Contessa Premium Foods, Inc.
Turnaround Management Association 2011 Award Winner
Contessa started business in 1984 as a small shrimp importer in San Pedro, CA. Over the next two decades it grew into a premium provider of farm raised shrimp, convenience meals, stir-fry vegetables, and other frozen food products. Sales reached $221 million in 2007. As part of an expansion program, Contessa invested in a new manufacturing plant, that would become the world’s first environmentally-friendly (green cuisine) frozen food processor. Unfortunately, not long after the plant opened in January 2008, the Great Recession occurred. Consumers substituted less expensive alternatives for Contessa’s premium products. Sales declined to $154 million in 2010. We quickly got the company to cash flow breakeven and then undertook a profitability analysis of its major product lines. We discovered that Contessa’s branded products, sold to major grocery chains, while appearing profitable, were actually losing money at the gross margin level. The company’s accounting did not capture all costs, like rebates and shelf space charges, associated with the grocery store sales channel. Exiting the branded product line further reduced the green cuisine plant utilization. As a result, we concluded a sale to a party that needed production capacity would yield the highest and best result. The sales process was initiated contemporaneously with the Chapter 11 filing. It was very successful, paying all creditors in full and returning value to the shareholders.
CREDITOR ADVISORY
Amcast Industrial Corporation
Amcast was a 100 year old auto parts and plumbing supply company with multiple plants throughout the Midwest and two auto parts manufacturing facilities in Italy. We were retained as Financial Advisor to Amcast’s senior lenders. At the time of our appointment, the bank debt was trading at 35 cents. Over a three year period the recovery by the senior lenders increased to the low 90s. This dramatic improvement was the result of a patient strategy of multiple forbearances that allowed the company to divest business units in an orderly fashion, combined with an operational turnaround executed by a very competent management team. Our role was to assist the Agent bank with the multiple forbearance negotiations, by supporting the company’s cash flow requirements and attesting to the credibility of management’s business plans and financial forecasts. We developed a strong working relationship with management, to the point that they terminated their own financial advisors because they were no longer needed.
Asyst Technologies, Inc.
Asyst was a leading manufacturer of automated material handling equipment for semiconductor and flat panel display manufacturers. Much of the company’s operations were in Japan. We were retained as Financial Advisor to the senior lenders. Asyst filed Chapter 11 in the US and the Japanese subsidiary filed insolvency proceedings in Japan resulting in a Trustee appointment in that country. The key driver for the US lenders’ recovery was a negotiated settlement with the Japanese Trustee. Dan Scouler traveled to Japan to meet with the Japanese Trustee, gained his confidence and negotiated a settlement for the allocation of assets that greatly exceeded expectations.
FINANCIAL ADVISOR TO COMMITTEE OF UNSECURED CREDITORS
Z Gallerie
Winner of a Turnaround Management Association award for Turnaround of the Year
Z Gallerie is a home furnishing, art and decorative 57 store retail chain based in Los Angeles. It was founded in 1979 by Joe and Mike Zieden and their sister Carole, as a small poster shop in Sherman Oaks, CA. The Company’s filing of Chapter 11 proceedings in April 2009 was a result of declining sales driven by competitive pricing pressures in retail home furnishings due to wide spread promotional activity, going out of business sales and the Great Recession. An ill-timed expansion was also a contributing factor. Many retailers do not survive a Chapter 11 filing. Liquidation is a common outcome. Z Gallerie survived and prospers today because of a collaborative effort among the professionals, the additional financial support from the Ziedens and our ability to convince the creditors that Z Gallerie had a strong customer following, that the reorganization plan would succeed and most importantly it offered the highest and best outcome. Our client, the Committee of Unsecured Creditors, received a full recovery. Z Gallerie was a classic reorganization.
Crabtree & Evelyn Ltd
Crabtree & Evelyn is a retailer of body, fragrance and home care products. It filed Chapter 11 in July of 2009. The corporate structure included several companies that were not part of the Chapter 11 proceedings, but did have inter-company transactions with Crabtree & Evelyn. The initial plan of reorganization provided for only a 5% recovery to the unsecured creditors, claiming that was all the reorganizing company could afford. We did an extensive analysis of the inter-company transactions which showed that Crabtree & Evelyn was being charged significantly above market on transactions with affiliates. As a result of our analysis, the ultimate recovery to the unsecured creditors was increased to 45%.
EXPERT WITNESS
Geoffrey Groshong, Chapter 11 Trustee of MILA, Inc.
US Bankruptcy Court, Western District of Washington
Case No. 07-13059
MILA, Inc. was in the business of funding and then reselling real estate loans. The loans funded by MILA were all characterized as subprime, that is, their customers had a subprime credit rating. Dan Scouler was retained by Mr. Groshong to provide an expert opinion on MILA’s date of insolvency. MILA purchased loans and resold them to various investors, including Residential Funding Corporation, Bear Sterns and Countrywide, entities that would become infamous during the Great Recession. MILA’s contracts with these lenders contained the absolute right to force MILA to take back the loan and refund the lender’s money up to 90 days after it was funded, under certain conditions. These conditions were generally focused on early payment defaults. Mr. Scouler was able to show, based on an extensive analysis of MILA’s repurchase accounting, that the company’s liability for loan repurchases was materially understated. Dividends were paid at a time when MILA was insolvent. At a mediation hearing, prior to trial, Mr. Scouler’s testimony and report resulted in the Chapter 11 Trustee achieving a seven-figure settlement.
CORPORATE WIND DOWN
Chrysler Surplus Assets – Old Car Co. Liquidation Trust
The restructuring of the auto industry resulted in certain assets being excluded from the reorganization. In Chrysler’s case these assets included various assembly plants and other surplus assets. In total these assets comprised one of the largest manufacturing liquidations in the country. Al Kirchhein managed key components of the wind down. His responsibilities included decommissioning plants, selling machinery and equipment, demolishing buildings and repurposing land. Al worked closely with the buyers, demolition teams, logistics companies, real estate brokers and all municipalities where the plants were located to facilitate an orderly process, insure recoveries were maximized and costs were controlled. The result was a recovery to creditors of hundreds of millions of dollars.