- Background
A large, family-owned manufacturer and marketer of both branded and private label consumer paper goods required a recapitalization to improve liquidity and retire maturing debt obligations. In previous financings, the lenders had received warrants for 20% and 15% of the common stock, which the owners wanted to recover. During the course of the financing, the price of natural gas, a significant input in the production process, skyrocketed by over 100%, resulting in a significant potential disruption to the financing process.
- Financing Challenge
- Develop a multi-tiered capital structure that repaid the maturing obligations and
improved ongoing liquidity.
- Establish an offering process that would allow the debt to be refinanced, while also
providing sufficient excess proceeds to promote liquidity and permit the stock buyback.
- Install a more accommodating senior lender willing to support the Company's
growth initiatives.
- Solution
- Innovative Financing Structure
$125 million financing designed to extend the maturity profile of the Company as well as reduce amortization and the weighted average cost of capital:
$25 million Revolver
$35 million/$15 million TLA/TLB
$50 million 2nd Lien TL
- Offering Size Increase
The Offering strategy developed was to generate interest in the recapitalization, and through the Debt Financing Auction Platform, develop sufficient interest so that the size of the financing could be increased to accommodate the stock repurchase.
- Projection Redevelopment
The natural gas price hike had the potential to derail the financing. However, through the redevelopment of the projections, improving cost savings and incorporating company specific projections of future natural gas prices and hedging strategies, the financing was completed.
- Result
- Financing Size
Increased by $15 million to accommodate stock repurchase: family ownership restored to 80%.
- Liquidity Increase
Additional $10 million in liquidity provided to the Company.
- Annual Interest Savings
$2 million in savings from replacement of existing loan facilities.