Secured Lenders achieve full recovery in a Chapter XI turned VII
A well-structured asset based loan, well monitored and well managed combined with a high quality legal team of banking and bankruptcy professionals in this instance realized a favorable outcome.
This monitored multi bank secured credit facility for an international high end fashion consumer product importer/distributor encountered its first problem when the customer embarked on a strategy to shift manufacturing for one of its major lower end products from its proven manufacturing provider in Western Europe to a more cost effective provider in an Eastern European market. The customer’s intermediary was not well managed and proved not only unreliable but ultimately dishonest. The result was missed deliveries, cancelled orders and significant costs incurred in a recovery effort. The resulting strain on the company’s resources led to a Chapter XI filing.
Rather than accept a consultant’s proposed discount on borrowed funds as a means to facilitate the customer’s turnaround, with bankruptcy court concurrence and agreed upon conversion to Chapter VII, the bank group embarked on a liquidation strategy. With a CFCS professional as the lead, a coordinated and focused effort to (1) collect outstanding receivables followed by the packaged sale of the balance of the accounts; and (2) a strategically coordinated, competitive bidding for bulk purchases of inventory followed by an auction of the remaining items created adequate proceeds for a full recovery for the bank group.
The key to success was the customer had good systems in place for tracking and managing its assets (particularly a/r and inventory); good quality assets secured the loan, which was a well structured, well monitored loan; combined with a sound strategy for recovery carefully managed and coordinated with committed, experienced professional advisors on the team.
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