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MCA Performs Collateral Review, Operational Analysis, and Valuation

By January 5, 2023Insights

MCA Financial Group was engaged by the secured lender to a distressed company to perform collateral review, operational analysis, and valuation and to advise on loan workout strategy and tactics. The distressed business, a transporter of bulk liquid commodities, was generating annual revenue of $40 million, but had been struggling with negative cash flow for more than a year-and-a-half.

A private equity investor complicated the loan workout and required taking into account competing forces — the bank was owed $16 million and the private equity investor had nearly $40 million invested. The dire circumstances prompted the PE firm to withhold additional funding and it pressured the lender to increase its funding, hoping the additional funds would result in the sale of the business and some upside for the PE firm.

MCA performed a going concern valuation, using DCF, comparable company, and cost approaches. Insight from the valuation along with additional borrower and industry information showed that company’s costs significantly exceeded revenue. In the company’s favor were purchase orders for a significant number of tractors at well below current market prices. Prices had since risen significantly following the supply-chain inflation that accompanied the pandemic.

MCA’s valuation, workout strategy, and tactical advice provided the bank the facts necessary to support its decision not to provide additional funding. The lender, unwilling to assume additional risk, pushed additional financing onto the prospective buyer, demonstrating the POs additional value for them in the transaction.

Business valuation and cash flow projection expertise, as well as industry knowledge, were essential in delivering sound workout strategy and negotiation tactics to the bank. MCA’s team maintained strong lines of communication with the lender and their counsel.

Our client recovered majority of its loan, avoided litigation, and chapter 11.