CASE STUDIES

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CASE STUDIES AND ACHIEVEMENTS: Douglas E. Castle

During the course of his career, Mr. Castle has achieved the following significant outcomes (in the aggregate) for his clients:

[I]   Arranged institutional financings (both new capital and replacement capital through refinancing of existing debt) in excess of $13.5 billion;

 

[II]  Reduced (through negotiation) bank debt, institutional debt, bondholder debt, guaranties, surety arrangements and obligations under capitalized leases by more than $150.0 million; and,

 

[III]  Restructured (through conversions) bonded debt, vendor debt and employee compensation into either equity or into options to purchase equity of more than $100.0 million.

The above amounts are based upon U.S. Dollar equivalents at foreign exchange estimates based upon averaged wholesale conversion factors for the first calendar quarter of 2013. The three statistics above do not address/ include debt service reductions (through increased amortization schedules, decreased rates of interest or conversions of debt into equity or equity options) negotiated through Mr. Castle’s efforts.

Following are selected case histories (with the names of all involved parties kept in anonymity) of some of Mr. Castle’s assignments. The reader should bear in mind that these are merely selected samples, and are offered for purposes of illustration only, with no guaranty, express of implied, that the same success, or success in general can be achieved in every client case.

Selected Client Case Histories: Douglas E. Castle

NOTE: The case histories briefly summarized below are those of actual clients whose identities and particulars have been omitted, as is my policy in the case of my dealings with any client. Extreme confidentiality [more than occasionally to the point of secrecy or stealth] is an important part of the service I render.

As for the list, it is by no means complete, and no one company restructuring, turnaround or transaction (including mergers, acquisitions, licensing arrangements, joint venture formations, valuation negotiations and the like) is the same as any other company’s.

While every case has variables in common with other cases, each case has its own distinctive nuances, not the least of which concern the personalities and positions of the persons involved. In addition, while some cases have been only a month or two in term to completion, some have taken as long as a whole year to complete. I have tried to keep these case histories exceedingly brief, with a focus on  one or more specific tactics or strategies which were used, or a specific goal (or goals) which was/were achieved.

I have simply assigned each individual case a letter:

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A)  A publicly-traded company was heavily leveraged with its two principal lenders (commercial banks), and needed to reduce debt service in order to sustain its business. I negotiated directly with each of the two banks, citing an imminent bankruptcy filing as a part of the leverage. One bank reduced the principal amount of its loan (a write-down) from $11.5 million to $6.5 million with no change in the interest rate. The second bank was permitted to allow the unpaid portion of the loan principal to remain the same, but extended the amortization term (fully-self-liquidating) from the two additional years remaining on an original 5-year term to a “fresh start” 5-year amortization term at the same interest rate. The company was able to service the restructured debt with its pre-debt cash flow and to stay in business.

 

B)  A well-established private company was going to lose its key creative and management team to a competitor and I was called in to prevent this. The members of the team did not have any type of covenants not to compete, or other employment agreements (they had expired and their renewal and renegotiation was overlooked). I quietly dissuaded the competitor from further aggressive solicitations (“poaching” is the industry term), and worked in conjunction with legal counsel to create new employment agreements which gave the team, post-dilutively, a 45% voting, participatory interest in the company, with a profit-sharing incentive where they could share amongst themselves an aggregate increment of  60% of the profit prior to distributions to the other stakeholders, where the profit exceed a certain percentage amount which the company had not yet attained. The contracts called for significant sacrifices, penalties and losses in the event that any of the team members were to leave, or to compete. It is wonderful to note that the company achieved its highest revenues and profits by the first anniversary of the new arrangement, and that by the second year, the team members were able to receive their first benefit from the profit-sharing distribution as they had reached the profit bonus threshold and exceeded it.

 

C)  A publicly-traded client wished to expand the market for its consumer product lines outside of the United States. I identified, qualified and entered into discussions, and later negotiations with several prospects in Canada, the Far East, the Middle East, India, Scotland, Ireland, England and Latin America  (as an agent for an undisclosed principal) to either distribute the lines or to co-venture with the client. I was successful at arranging two major multi-country distributorships [ each of whom paid for inventory, subject to a firm purchase order supported by a letter of credit or trade guaranty issued and backed by EXIM bank and/or OPIC. I was also instrumental in segregating the business into a domestic business and separately incorporated affiliate that received special tax advantages associated with its status as a Foreign Sales Corporation (The IRS successor to a DISC — a Domestic International Sales Corporation). I also arranged one very aggressive and profitable joint venture with an Irish firm which turned out to be a help in the fulfillment, administrative and creative processes, as well. My client was also able to enjoy the benefits (in The Republic Of Ireland) of a tax holiday and special tax status.

 

D)  A publicly-traded client firm manufactured a very expensive piece of medical diagnostic equipment, but was running short on cash. In fact, the president was selling off stock into the market to raise money to loan to the company to sustain operations which included complete manufacturing, rigging and installation. In lieu of interest, the company’s president who was the controlling shareholder would have the company issue him additional shares (at a nominal option price) which was becoming increasingly dilutive to the shareholders, who were becoming increasingly vociferous (in the most threatening sense) about this method of financing. I arranged for two choices: the first was to license the product for manufacturing and distribution by established medical diagnostics companies in consideration of a royalty and certain other rights and privileges; the second was for a revolving line of credit (for approximately $27.0 million) to operate the company, add staff and manufacture the devices – which sold at approximately $1.5 million each — and an additional $50.0 million in standby credit facilities for a vendor leasing program whereby the client could lease the equipment to its customers at very competitive terms without stringent credit hurdles. This second alternative also carried with it a package of warrants to purchase the up to 5.0% of the client company’s common shares as an inducement for it to extend itself and incur some much risk. The client gravitated toward the second alternative for purposes of control and branding, but actually used the lender’s hard-won Commitment Letter to “shop” (completely against my admonitions) for another financier, and received an offer which proved to be, after the initial honeymooning, a deal with terms significantly less generous than those offered by the finance company which I had procured.

While the client insisted that I go back to the first financial institution to try to revive the deal as offered, I was against doing that, for there had already been a significant breach of trust. I ultimately obtained a financial commitment (as a simple credit line) from a small private lending firm at terms which were somewhat more onerous than the terms initially offered in the Commitment Letter, which the client accepted.

 

E) A large, family-owned company protected pursuant to Chapter 11, required an Emergence Plan, controls, monitoring and some additional housekeeping (with respect to excessive cash drawings by the third generation of owners due to a long-standing policy of nepotism over meritocracy, the lack of a plan to regain a number of  formerly-loyal customers lost due to a lack of confidence in their financial viability, the lack of a plan to regain certain of their suppliers and vendors back because of a history of late payment, and some fixed cost-cutting measures which needed to be deployed to reduce the monthly rate of capital consumption, and other such entrenched bad habits and disreputability), which I agreed to undertake.

I assisted in: the termination of several of the family “employees”; the cutting of the average monthly rate of capital burn (on a standstill basis) by nearly one-third, and initiating some expense and expenditure authorization protocols to make these savings permanent in their nature; the arrangement, on a standby basis, of an invoice financing facility [similar to full notification accounts receivable factoring] coupled with a direct third party payment and guaranty (unrelated to the client or the company) to suppliers and vendors, with certain monthly limitations, which I discussed with them (each, individually) in order to obtain their “buy-in”; I made arrangements with a fulfillment facility (again, third party and unrelated to the client or the company) for timely deliveries to customers — who were actually distributors of the client’s company’s goods — and which I discussed with them (each, individually) in order to obtain their buy-in, which could not be obtained unless I could get the client to agree to a substantial pricing discount if the customers paid within a narrower time frame [within 30 days or less, instead of the customary 65-day average].

During my tenure with the client, and prior to his company’s successful emergence from Chapter 11, I began exploring the idea of having a consortium comprised of the suppliers (none in competition with any of its counterparts) get enthusiastic about the prospect of buying a substantial share — a controlling interest, in the aggregate — in the client’s company [post-emergence], and the parties [including the client] were quite amenable after exhausting negotiations regarding valuation and price.

My reasoning was that this type of arrangement would merge the best interests of the suppliers and the company (a classic example of cooperative vertical integration), eliminate the issue of nepotism and entitlement permanently, and would capitalize the company sufficiently to campaign to win customers back firmly. This transaction was consummated approximately six months post-emergence and was successful.

 

F)  A client [the board of directors/owners of a 5-year old, closely-held company] had been successful its core service business, and had acquired a large number of smaller companies — a horizontal integration and product diversification strategy, and a sensible one — in order to expand its customer base and increase its skilled and specialized employees [principally IT and technology-oriented individuals] and its “brain trust”. Because of its aggressive acquisition timetable, it was was having problems making payroll and was choking on its acquisitions. It needed a strategic plan to survive its overwhelmingly rapid growth.

My plan, which won board approval, and which was subsequently implemented by me, contained the following elements:

  1. Stop further acquisitions;

  2. Send out (aggressively, and repeatedly) notifications, endorsed by both a) each of the acquiree company’s officers and b) the client’s chief accounting officer on my client’s letterhead to each of the customers of all of the acquired companies’ clients that all billings would emanate from my client’s offices, and that all payment should be directed there. The target was to get an average collection period of 40;

  3. That the payroll be made semi-monthly instead of weekly to reduce total effort, transactions costs, and conserve cash flow;

  4. I was to negotiate with the client’s trade vendors and other creditors for later payments — with a small premium for the inconvenience, if I thought, in my discretion, that to be necessary. [Note: out of the fifteen creditors, I had difficulty with two, which we just continued to pay promptly — but the premium was neither mentioned nor used as an inducement].  The target was to increase the average payable period to 65 days.

The campaign came close to target within three or four months, after which time I negotiated with my client’s bank to increase its advance percentage on accounts receivable under the client company’s credit facility to 85% instead of 60% on all receivables up to 75 days old.  My client’s credit access was increased and cash flow was increased significantly through the implementation of the plan and the change in the terms of the banks facility.

G)  My client, at the time of referral was a  corporate debtor-in-possession with very little liquidity and cash flow available to pay its bills. Most of the customers were commercial enterprises but several (not constituting more than 20% of the client revenue in the aggregate) were governmental and quasi-governmental enterprises which were hesitant to pay — and rather adamant about it — since knowing of my client’s status.

I worked with a factoring firm I knew in order to put together a very positive-sounding letter [in fact it was a factor’s notification letter, but written as if my client had gotten a line of credit!] which letter and underlying invoice discounting was approved with the assistance of legal counsel (the referring firm), and which ultimately went out to all of my clients customers. I also made, or supervised the making of individual calls to the decision making parties at the governmental and quasi-governmental clients, and firmly insisted on payments being withheld to be released since my client had “more than sufficient” cash and other resources to continue as a viable services provider. We received cooperation. Within 15 months the client was no longer constrained or classified as a debtor-in-possession.

 The client worked in accordance with this arrangement for close to 18 months, after which time I was able to negotiate a credit line at very favorable terms with a more aggressive commercial bank to get them a line of credit secured by its building, inventory (in all states of completion) and receivables.

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NOTE: The foregoing were several examples of the assignments in which I have taken a supervisory role. In my client assignments, I generally prefer to work as the understood “Financial Restructuring Officer”. I operate precipitously, aggressively, hands-on and on my own initiative, but clearly within parameters defined in a Letter Of Engagement with each client. I keep both the client and the referring or retained legal counsel informed and request guidance where legalities may be concerned, and I strive for consensus (and occasionally refinement in the process) among the client’s senior management and legal counsel in every case where I have created a written Actionable Plan for restructuring and/or emergence. In some cases, the Actionable Plan is more formally approved by the client and counsel, and is appended to the Letter Of Engagement to serve as an amendment which changes the scope of work.

 

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This site is the Management Consultants' and Chief Reconstruction Officers' best all-industry guide to analyzing, diagnosing, devising a strategy, creating either an Action Plan or an Emergence Plan and overseeing and monitoring the successful implementation of either in order to ensure the client organization's optimal, sustainable profitability. These plans are always made scalable to accommodate the size and needs of the client, whether it is fast-growing young company with an aggressive and ambitious agenda, or whether it is an older, larger, well-established business which is experiencing problems or which is at a crucial decision making point in its evolution as an entity, and which requires sound advice (and often implementation oversight and assertive "hands-on" assistance in the form of a powerful third-party representative agent or a an expert in the art of negotiation as its appointed "point person") regarding its next steps. In the alternative, Douglas E. Castle is expert at helping fast-track, rapidly emerging companies to growth through acquisitions, mergers, licensing, branding and both domestic and international strategic joint ventures to access better, more efficient supply chain sourcing and to open up wider global markets to dramatically increase the scope of possible new revenue opportunities.