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Cal Cpa Bic 10 19 11
Banks want to see 13-week cash flow forecasts, current financial statements including balance sheets, income statements and cash flow statements, and a turnaround plan with defined milestones and metrics. They want clarity on the issues, full disclosure of financials, and solutions or plans from management rather than just problems. Banks are looking for signs the borrower has "skin in the game" through things like owner capital infusions. Providing these tools and transparency can help banks understand the situation and be more supportive for troubled borrowers.
Cal Cpa Bic 10 19 11
- 1. CalCPA When Real Trouble Hits How To Speak To Your Bank California Society of CPA’s LA B&I October 19, 2011
- 2. Agenda When Real Trouble Hits - How To Speak To Your Bank Background of Jonathan Wernick and Kibel Green Stakeholders Current Pulse of the Banking Environment Signs of Trouble What Banks Want to See Tools Asks Consideration of a Third Party Q&A 2
- 3. Biography – JonathanJ. Wernick Jonathan J. Wernick Professional Experience: Managing Consultant Kibel Green Inc. Jonathan Wernick is a Managing Consultant with the Turnaround Practice at Kibel Green. He brings nearly 20 years of audit, finance and accounting experience to Kibel Green Contact Information: Phone: 310-829-0255 x205 Mr. Wernick has assisted clients with forensic investigations, creditor negotiations, sale of assets, loss Fax: 323-843-9385 mitigation, litigation support, solvency analysis, financial restructuring, strategic and business plan development, capital sourcing, and operational improvement E-mail Address: Prior to joining Kibel Green, Mr. Wernick served as an interim CFO/Controller for public and private [email protected] companies. Jonathan has also held management roles at Trader Joes Company, Softline Software & Patina Restaurant Group Office Address: 2001 Wilshire Blvd., Prior to working in the private sector, Jonathan was a CPA with KPMG LLP where he focused on Suite 420 middle market companies in the real estate, manufacturing, healthcare and retail sectors Santa Monica, CA 90403 Mr. Wernick is an active participant in many professional associations including the California Society of CPA’s Members in Industry, Association of Certified Fraud Examiners, Association for Capital Growth, Growth Turnaround Management Association American Bankruptcy Institute and Provisors Association, Giving back to the community is important to Mr. Wernick. He sits on the board of the Downs Syndrome Association of Los Angeles and the Etta Israel Center. In addition, he has been a mentor to USC students and a sponsor of field projects so students could acquire real world business experience Education & Certifications: MBA – University of Southern California B.S. – Yeshiva University Certified Public Accountant State of California – Active License Certificate in Culinary A t C tifi t i C li Arts
- 4. Kibel Green Inc.- Firm Overview We offer three synergistic capabilities for middle market companies Over 1,500 clients since 1984 Primary focus on public and $5B in transactions private middle market companies Turnaround Operations Lender negotiation Profitability improvement Cash flow maximization Organization simplification Business plan vetting Supply chain efficiency Cost management Project management CRO services A one-stop solution Broad experience Financial Strong partnership with management Retail Restructuring Senior-level professionals Manufacturing Debt negotiations Distribution New funding sources Resources and expertise Service Bankruptcy plans for urgent situations Real Estate Sale of assets A regional presence in Technology the Western U.S. 4
- 5. More Simply Kibel Greenis a financial advisor that connects the dots for all stakeholders 5
- 6. Stakeholders Vendors V d Customers Ownership Employees Financial Institution Professional Advisors 6
- 7. Current Pulse ofBanking Environment Quarterly profit for Wells Fargo and Citibank close to $4 billion 7
- 8. Current Pulse ofBanking Environment Despite profitability the banks are holding on 8
- 9. Current Pulse ofBanking Environment Per Marketplace this past Monday Coronado: Well if you look through the details, the results are just OK. Banks are actually having a tougher time making money and growing revenue. So unfortunately, I think that what it means is credit standards are probably going to stay pretty tight for a while -- it doesn't look like it's going to ease up anytime soon. Hobson: But when people hear about $3, $4 billion profits, and they know that these banks are p p $ ,$ p , y sitting on a lot of cash; they've got access to cheap money from the Fed, they're going to say, "Why aren't they lending?" Coronado: So we have a bit of a chicken and egg situation. After the financial crisis, we want to move to a world with smaller banks, with more tightly-regulated banks. So that means banks have to set aside more of their earnings to shore up their capital position so that they're safer. And what that means is that there's going to be less of that money available for lending. And of course b k know they're under tighter scrutiny about the kinds of loans that they make. So in the banks k th ' d ti ht ti b t th ki d f l th t th k S i th process of moving to a world of tighter regulation -- that by definition means less free money around. 9
- 10. Current Pulse ofBanking Environment Per Marketplace this past Monday Big b k are also being hurt by the problems in Europe. So to get the true sense of how America is i banks l b i h b h bl i S h fh i i doing, look at the little banks. Here's Fred Cannon at Keefe Bruyette & Woods. Fred Cannon: There's a lot of regional banks -- small community banks -- that are doing OK. The reason: Those banks are lending more money to local businesses and don't depend on volatile markets. markets 10
- 11. Signs of Trouble Broken Covenants Declining Missed Cash Flow Projections Diminishing Vendor Relationships 11
- 12. More Signs ofTrouble Potential Distress Signals Checklist Breaches of key performance covenants (i.e., Late filing of financial statements/other minimum EBITDA, maximum leverage or EBITDA information i f ti interest coverage, minimum FCCR) Tightening of availability/taking more reserves Failure to meet business plan Vendors tightening terms Significant declines in cash flow Significant litigation Increases in days payables Capital infusion by owner Piecemeal asset sales Large write-downs Loss of key customer or vendor Transfer to special assets division Layoffs Sales of debt obligations to other parties High turnover at officer level Death/incapacity of owner 12
- 13. What do BankersWant to See 13
- 14. What do BankersWant to See CLARITY 14
- 15. What do BankersWant to See No Surprises “They are for birthdays” 15
- 16. What do BankersWant to See Full Disclosure 16
- 17. What do BankersWant to See Solutions / Not just Citing a Problem AKA “A Plan” 17
- 18. What do BankersWant to See Skin in the Game 18
- 19. What are theTools ? 19
- 20. What are theTools ? a. 13 week cash flow Yes b. Current Balance Sheet, Income Statement and cash flow Usually required Quarterly and statements outside of quarterly reporting are subject to adjustments defeating the purpose, but willingness/ability to provide statements quickly suggests the owner is actually looking at their financials to make adjustments to operations from a borrower actually looking at their financials to make adjustments to operations from a borrower that is losing interest/ignorant/etc. In the same respect, a business owner that understands their financials and can discuss with the banker distinguishes them and goes a long way in likelihood of working together instead of arguing. c. Quarterly cash flow If not a quarterly requirement, beneficial but cash flow and debt service ability usually performed by banker. d. 12 month projection with debt and covenant coverage Projections are important, bank usually likes to determine ability to cover covenant requirements. When the borrower usually likes to determine ability to cover covenant requirements. When the borrower tells the bank they will meet covenants in projections, it looks more like the projections have been established around ensuring the covenant requirement is met. e. AR/ AP / INV aging with explanation of items over 60 days Yes, explanations are important. i t t f. Executive summary on the key business issues and plans on how to improve Anyone can say how things will get better, I could tell you the housing market will reach 2005 levels in the next year. Identifying ways the company has made improvements over the last 3‐ 6 months would be more beneficial. g. Listing of expense reductions Again, showing the benefit of expense reductions already made would be better. 20
- 21. Asks What should you be asking for ? 21
- 22. Asks Over advance Time Interest Only Forbearance AdditionalCollateral Be prepared to pay higher interest in exchange for the asks. 22
- 23. Client Profile –Sample of Recent Engagements We have broad industry experience and strong expertise in distressed situations Function Size Description Service Provided Manufacturer $75M Consumer Products Operations Manufacturer $310M Consumer Products Operations, Financial Restructuring Manufacturer $1.0B Technology Operations Manufacturer $300M Automotive Turnaround, Financial Restructuring Manufacturer $1.1B Sports Equipment Operations Distributor $90M Food Turnaround, Operations Distributor $65M Consumer Products Turnaround Distributor $80M Automotive Turnaround Retailer $85M Home Furnishings Turnaround, Operations Retailer $ $135M Consumer Products Operations p Publisher $330M Media Turnaround, Financial Restructuring Services $10M Entertainment Turnaround, Financial Restructuring Services $56M Staffing Turnaround, Operations, Financial Restructuring Services $41M Logistics Turnaround Services $100M Hospital Turnaround Real Estate 1 $115M Residential Turnaround Real Estate 1 $400M Residential Turnaround Real E t t R l Estate 1 $175M $ Commercial C l Turnaround d 1) Size measured by annual revenue except for real estate which represents asset value 23
- 24. Service Offerings -Turnaround Our turnaround service offering concentrates on four key activities to address visibility, cost and business model issues Developing a Projecting and Reducing Costs – Improving Plan – Current Managing Cash Lowering Break Management State vs. Future Flow Even Reporting State Develop a rolling 13- Renegotiate real estate Develop a detailed Create weekly week plan and personal property current state income information package leases statement Tie projections to Develop company balance sheet Evaluate facility Build a target future dashboard / key driver consolidation state – profitable report Create goals and business model assign responsibility Reduce payroll Improve expense Identify actions communication among Identify potential yp necessary to lenders, lenders equity and sources of cash Reengineer processes implement plan management 24
- 25. Service Offerings –Financial Restructuring Integrates diverse skill-set to offer powerful Financial Restructuring p g p g platform Deep understanding of the restructuring process (in and out of Chapter 11). Restructuring Long-standing presence in the distressed environment and reputation for Expertise knowing the players and sources of capital. Forge constructive deals deals. Combination of Financial Restructuring, Turnaround and Operations under one roof provides a differentiated platform. Powerful Platform Can develop capital structure solutions, provide credible reporting and implement value enhancing operational improvements value-enhancing improvements. Able to vet Plans of Reorganization and formulate alternative Plans. Client Advocate Will fight on behalf of client constituency to ensure they are not taken advantage of. of As a smaller firm, better able to prevent market knowledge of a transaction. Confidentiality Preserve confidentiality where creditor wants to stay unrestricted (i.e., not receive non-public information) and needs party to review that information information), information. Provide objective 3rd party perspective on a Company’s situation and recovery Objectivity prospects for constituencies. Honest broker that can manage intra-creditor differences. g 25
- 26. Service Offerings –Financial Restructuring Representing Creditors and Debtors in various types of Financial Restructurings Restructuring Balance Sheets Renegotiating Debt Covenants/Terms $645M meat processor and sandwich maker $140M mobile phone distributor $250M contract manufacturer of field rations for $200M chain of regional casinos the military $96M global provider of telecommunications $366M natural gas plants in the Northeast services $150M chain of furniture stores $350M chain of electronics and furniture stores Raising Capital Selling Distressed Assets/Companies $350M manufacturer and distributor of medical $100M Group of wineries in Northern California consumables for the elderly $114M Jeweler targeting low-middle income $126M manufacturer and distributor of dairy Hispanic market products $200M retailer of denim and casual clothing for $75M chain of Mexican restaurants teens $100M integrated media publishing company $125M manufacturer of consumer and (trade magazines, journals, conferences) commercial cooking equipment 26
- 27. Service Offerings –Financial Restructuring When to contact us The earlier Kibel Green is brought in, the wider the range of restructuring options. As operations and enterprise value deteriorate, the probability of a successful turnaround or restructuring declines dramatically. Potential Distress Signals Checklist Breaches of key performance covenants (i.e., Late filing of financial statements/other minimum EBITDA, maximum leverage or EBITDA information i f ti interest coverage, minimum FCCR) Tightening of availability/taking more reserves Failure to meet business plan Vendors tightening terms Significant declines in cash flow Significant litigation Increases in days payables Capital infusion by owner Piecemeal asset sales Large write-downs Loss of key customer or vendor Transfer to special assets division Layoffs Sales of debt obligations to other parties High turnover at officer level Death/incapacity of owner 27
- 28. Kibel Green’s Approach Ourstandard approach translates objective, fact-based analyses into tangible client benefits Objectivity and Experience A 3rd party that is the Honest Broker and can achieve results with key constituents Critical, Thorough Analyses Detailed cash flow, financial forecasts and valuations, and analysis of stakeholder interests flow valuations Development of Strategies and Plans Vetting d/ d V i and/or development of business plans that are believable to all key constituents l fb i l h b li bl ll k i Practical Solutions and Action Steps p Converting the Plan into action and guiding the client through the process Positive Results for Clients Achieving the client’s objectives 28
- 29. Stabilized cash flow,enhanced relationship with outsourced billing company, evaluated viability of expiring service contract. Company Challenges Results Delivered Multi-unit medical service provider Negotiated new lower cost contract experienced strained relationship with provider. with outsourced billi provider. ith t d billing id Identified a discrepancy in data Procedure revenue was in excess of transmissions, illustrated the previous year yet cash difference and expedited the funds reimbursements were considerable due to them. lower. Provided tools to monitor and Company knew something was estimate timely reimbursement. wrong but felt paralyzed in how to Recommended to not renew go about fixing the issue. contract and arranged for a fair and Contract with local hospital was equitable wind down of operations expiring and the company was unsure if renewing would fit their long term profitability goals goals. Jonathan J. Wernick Steven J. Green Managing Consultant Co- Co Founder & President 310-829-0255 x205 310-829-0255 x220 [email protected] [email protected]
- 30. Guided company throughdefault with lender and restart operations. Company Challenges Results Delivered Established multi-location $50 Negotiated forbearance agreement million manufacturer in over with bank. advance position with lender. d iti ith l d Prepared 13 week cash flow and Forecasting tools and inventory streamlined financial reporting management tools deemed package. unreliable from bank. Initiated plan to get suppliers to Suppliers refused to ship raw ship raw materials. materials. Convinced management and Bank and management considering bankers on the viability of a going to close operations. operations concern. concern Jonathan J. Wernick Steven J. Green Managing Consultant Co- Co Founder & President 310-829-0255 x205 310-829-0255 x220 [email protected] [email protected]
- 31. Enabled turnaround andachieved long-term agreement on $130 million syndicated loan. Company Challenges Results Delivered Multi-unit $350 million retailer Prepared an objective assessment required line of credit for consumer providing clarity to the lenders. financing. fi i Implemented a weekly cash flow Loan was in default and needed modeling tool to navigate tighter restructuring. loan availability. Lenders were concerned about the Created a dashboard of key reliability of the business plan. performance drivers (KPI’s) to Expanded rapidly in last 3 years assess and improve financial and and internal infrastructure of operational results. financial and purchasing practices Identified costs savings and did not keep pace with growth. inventory reduction programs Measures to cut costs and improve leading to significant improvements working capital were not enough to in liquidity and profitability. address decreasing revenues. Jonathan J. Wernick Steven J. Green Managing Consultant Co- Co Founder & President 310-829-0255 x205 310-829-0255 x220 [email protected] [email protected]
- 32. Fostered confidence infinancial oversight for an equity sponsor and asset based lender Company Challenges Results Delivered Equity sponsor of $30 million health Delivered a robust financial and beauty aid manufacturer reporting package using the unsure of company’s fi f ’ financial i l existing software. S l d back the i ti ft Scaled b k th stability and ability to report need for equity sponsor’s oversight results. meetings from weekly to monthly. Asset based lender concerned Increased credit line and reduced about finance operations. bank fees. Vendors losing trust with lack of Developed AP payment plan that follow through on commitments clearly communicated to vendors and communication. and adhered to. Distributors were lax in paying in a Created weekly AR review process timely manner. and customer contact campaign that improved cash receipts. Jonathan J. Wernick Steven J. Green Managing Consultant Co- Co Founder & President 310-829-0255 x205 310-829-0255 x220 [email protected] [email protected]
- 33. Contact Information –Los Angeles Office 2001 Wilshire Boulevard Suite 420 Santa Monica, CA 90403 866.875.0255 Tel 310.453.6324 Fax www.kginc.com Steven J. Green, Co-Founder & President 310.829.0255 x220 [email protected] Jonathan J. Wernick, Managing Consultant, Turnaround Group 310.829.0255 x205 [email protected] J i k@k i 33 33
- 34. The Book - How to Turn Around a Financially Troubled Company* By Harvey R. Kibel Selected by the Library Journal as one of the ten best business books. This unique turnaround manual gives you principles and practical advice for survival in very tough situations Here are just a few of the key questions it situations. answers: • Can I find a way to buy time for my company? • When is a bank willing to function as a working partner rather than as an adversary? • How can the vendor be given enough confidence in the company to deliver products. *This book, a bible for the workout field, was selected as one of the ten best business books by the Library Journal and resulted in Mr. Kibel's receipt of the National Award of Excellence from President Reagan at a White House ceremony. 34