REAL-WORLD CASE STUDY
London Manhattan Company, founded
in 1989, sources funding for its clients,
many of which are in ‘unproductive lender
relationships’ and seeking improved financial
arrangements. The continued existence
of organisations like London Manhattan
Company indicates both the need for non-
financial corporates to seek help when
adjusting their capital structures and funding
arrangements, and the complexity of deals
that need to be arranged. The good news is
that concepts in our previous chapters, which
focus on long-term financing and leasing,
and decisions about dividend payouts,
underpin the set-up of even the most
complicated refinancing deals.
Below is a case study of a moderately
complex deal from London Manhattan
Company’s webpage.The London Manhattan Company recently
found a $9 Million Cash Flow Term Loan
Financing for one of our clients in the food
service industry. The client had no fixed
assets.
The working relationship between our
client and its former lender had deteriorated,
leading to litigation. Settlement discussions
had ground to a halt. The parties asked
LMC to broker a settlement deal between
them, and then arrange the financing to
implement it.
LMC negotiated the financial terms of the
litigation settlement between the parties, and
arranged new cash flow financing to fund it.
The new loan provided proceeds to refinance
the borrower’s existing debt, fund the
repurchase of the stock and warrants held by
its prior lender, and provide additional working
capital to the company.
Below is a sketch of the financing
arrangements set-up by LMC.a amount financed: $9 million.
b structure for financing: variable rate
term loan.
c index: 30-day LIBOR plus margin.
d amortisation: stipulated monthly
payments with a balloon payment at
maturity.
e loan term: 72 months.
f collateral: cash flow plus overall
lien on all intangible assets of the
company and personal property
subject only to liens allowed by the
new lender.
g use of proceeds: to retire existing
debt, repurchase ordinary shares,
preferred shares and warrants from
the prior lender, and provide working
capital.
h other closing conditions: execution of
settlement agreement between the
borrower and the prior lender.
Source: The London Manhattan Company. Used with permission.
http://www.londonmanhattan.net/more-case-studies/(accessed 8 January 2016)ASSIGNMENT
1 For point b: What are the benefits and
risks of a variable rate loan as opposed to
a fixed rate loan?
2 For point c: Because this basis for setting
the interest rate on the loan means it may
vary month-to-month, what actions could
the borrower take to manage the risk of
volatility?
3 For point f: What sorts of ‘intangibles’
might be suitable collateral for a long-
term loan?
4 For point g: Why do you think that the
borrower would be willing to explain its
use of the borrowed funds (think about
the investors’ points of view)?RESTRUCTURING FINANCES TO END LITIGATION