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Case Study: Consumer Debt Collection CompanyCompany: $130 million equity-sponsor owned provider of consumer debt collection services on both a contingency (recovery) and outsourcing basis.Situation/ Tasks Performed: The Company was a roll-up of several collections companies with differing customer bases. It was financed through senior debt facilities totaling $26 million ($20 million term, $16 million revolver) and subordinated debt of $100 million. The Company’s EBITDA had dropped from $16 million to $13 million, it had defaulted on its subordinated debt and was requesting overadvances to fund its liquidity needs and collateralize $3 million of necessary performance bonds. The Bank Group hired TRG to analyze the Company’s cash flow, validate its budget, perform a valuation of the Company and provide advice regarding exit strategies. Results: TRG’s analysis indicated the Company’s cash forecasting and cash management systems were inaccurate and inadequate. TRG’s work led to the preparation of more accurate forecasts and the disclosure that the Company was out-of-trust with its clients’ funds on several occasions. The valuation work in conjunction with an analysis of the capital structure and operating dynamics of the Company allowed the Bank Group to reach agreement that a consensual transaction with a discount to their claims would be necessary to maximize their return. The Bank Group sold their term debt exposure to an entity that provided $6 million of mezzanine financing while effecting the conversion of the subordinated debt to equity. The Bank Group maintained their revolving facility on, now, a market basis. Additionally, the Bank Group’s letters of credit securing the Company’s performance bonds were released. Nature of Assignment: Primary: Financial Advisory Secondary: Business Plan Review & Assessment Industry: Finance Services
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© Copyright 2007 The Recovery Group, Inc. All rights reserved |
