Developed and delivered rapid debt reduction in line with lender expectations to avoid insolvency.
Global financial crisis hits
WA car and property group.
The global financial crisis of 2008-10 had a devastating effect on businesses worldwide. One such company was a Western Australian automotive and property development group. The business had bank facilities totalling $41.1 million and was in default with its secured lenders following the softening of the car market and the GFC’s effect on property values.
The Group asked us to help develop a turnaround plan to work out its debt positions and keep secured lenders on side. When the plan was presented, their main bank was on the verge of appointing receivers to enforce recovery of its debt.
The family-controlled group was not equipped to deal with the complexities largely caused by the GFC and partly by a complicated over-leveraged structure. Previous strategies to provide intra-group funding support were unworkable, as most entities in the Group were cash flow negative and multiple bank facilities were in default.
Without a clear plan to fix the situation and effective communication with the principal lender, bank support would have been lost, triggering multi-million dollar losses to the family group.
A complex tax-driven structure involving layers of corporate trustees, family and unit trusts, property-owning trusts and trading trusts created additional challenges to avoid triggering further defaults with other lenders.
The company’s financial structure was equally complex. Multiple lenders with facilities featuring multiple variations made it difficult to clearly identify each lender’s position. Matters were made worse by weak internal controls (financial and operational) and the lack of a clear strategy.
How we turned things around.
Andrew Birch led Vantage Performance’s turnaround of the Group.
“We started by reviewing the Group’s property portfolio and its associated loan-to-value ratios to identify our restructuring options,” he says.
“We then created a financial model to test and develop strategies to bring the group’s facilities within the principal banker’s covenants and prepared and implemented a targeted property sale strategy with clear milestones.
Metrics were identified and implemented to track performance for each business unit and stakeholders received regular updates to ensure their ongoing support.
“I mentored and guided the Managing Director for 12 months while properties were sold – or developed, let and sold – to enable the residual debt to be refinanced. And I’m happy to say that all the Group’s business units were operating at, or above, breakeven after this 12 month period,” says Andrew.
The key results of the turnaround were:
- stakeholder confidence provided the Group with time to sell its targeted properties in an orderly manner to maximise value
- property sales of $20 million in 4 months restored bank covenants from an LVR of 86% to 65%
- $32.6 million of bank debt was repaid through property sales and refinance
- successful refinance of the incumbent lender who received a 100% recovery of principal and interest
- stabilisation of the Group’s activities and balance sheet which improved shareholder value by around $10 million, underscoring the client’s return on investment of 43 x.