13 Feb Case Studies February 2014

Dear all,

Henri Frederic Amiel once said that destiny has two ways of crushing us….By refusing our wishes, and by fulfilling them.

Please take the time to read the latest Robinson Sewell Partners’ report on how RSP business clients (Agribusiness or Commercial) avoid being “crushed” by the financial burdens of their businesses by taking full control their financial destiny.  Below are three case studies of clients who have achieved their targeted financial objectives and enhanced profitability by focusing on their funding platform that underpins the liquidity of their business.

Client Position: No Bank Manager

A prominent agribusiness client was left without a bank manager during a critical (expansion) transition within the business.  The lack of responsiveness was putting the client in a financial compromising position given the complexity of the structures and layers of the transaction.  The client engaged RSP to project manage the opportunity to tender the business in the market to ensure the client has the funding platform required to expand the business.

RSP Solution

Working through the client issues and after completing the Due Diligence process it was apparent that the restructuring requirements were more complex than initially presented.  What started as a $3.3 million transaction translated into a full restructure of the Groups funding which totalled $9,700,000.  One bank (and an astute bank manager) took grasp of the requirements and with guidance from RSP, constructed a total funding solution.  The client procured the $1.1million in expansion capital plus saved $193,000 p.a. in interest on the legacy debt.  RSP also managed to waiver $57,000 of breakage costs from the legacy bank during the refinance process.

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Client Position:   Boutique Enterprise

The client was conducting a very niche, boutique and frontier farming business.  Their existing bank was having trouble digesting the export expansion growth of the business by the way of providing additional capital.  Given the uniqueness of the business model, their current bank was challenged to underwrite the business given there was very little comparative analysis to the enterprise choice.

RSP was engaged to remedy the client’s position and to present the client’s business in a language that he banking community understood.

RSP Solution

RSP conducted the Due Diligence required to prepare a succinct credit paper in anticipation to a level of negotiations with hand-picked bank managers that would up for the task. Not only did RSP achieve providing the additional expansion capital required for the business, but also achieved a non-recourse $1,650,000 facility (no directors guarantees) which remove substantial risk from the directors personal assets.  Given the boutique and specialised nature of this business, this was accepted by the directors as a substantial improvement to their previous banking arrangements.

The business has since gone from strength to strength in the export market, not only repaying the loan in full from cash flow, but now produces over 60% of Australia’s total production and is the Southern Hemisphere’s single biggest producer of their product.

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Client Position:   Financial Duress

The client was under growing pressure from existing bank to refinance their $1,450 000 facility.  The client had a poor financial history (for reasons that could be mitigated), good security and a more robust economic viability outlook.  Their existing bank would not change their sentiment regardless of new position so RSP was engaged to package the business in accordance to bank policy and formally present their business to market.

RSP Solution

RSP completed a full credit profile paper and approached a strategic panel of mainstream financial lenders.  Invited a bank manager with the resources to understand the client’s position and pursue the opportunity.  The new bank offered a competitive finance package and relationship proposition that met all of the client’s requirements and which the clients readily accepted.  Refinance settled shortly thereafter with the guidance of RSP.

The solution avoided:

• 1. Clients being charged default interest which would have increased interest costs by $58,000 per annum;
  2. Clients being transferred to previous banks debt recovery unit;
  3. Potential for a forced property sale, which could have resulted in a below average property price outcome.

The solution achieved:

1. Providing the client with a sustainable funding solution to support the business back into profitability.
2. Removed the emotional trauma from their previous financial relationship and experience.

Fulfilling your financial destiny does mean taking affirmative action.  The prospective results can financially liberate a business and ignoring the imperative is only to the detriment of the key stakeholders.  FY14 is the year of affirmative action…