Minute 1: Growing Headwinds for Lower Middle Market Companies
The current trends in bankruptcy and restructuring for lower middle market companies are influenced by various factors, including the economic impact of the COVID-19 pandemic, rising interest rates, and the role of sponsors and lenders in the restructuring process. Lower middle-market companies seeking Chapter 11 bankruptcy protection face added complexity, and the forecast wave of corporate bankruptcies is expected to impact many industries.
These companies often lack the large liquidity reserves of larger firms, making it challenging to navigate the restructuring process. Additionally, traditional bank lenders are retreating from stressed lower middle-market situations, creating opportunities for newer and more flexible funds to provide relief.
Furthermore, companies and lenders are increasingly seeking to exhaust other options before resorting to court-led bankruptcies, as the process can be expensive and limit a company’s options. The rising interest rates and difficulty in obtaining revolving credit have also heightened the risk of liquidity crises for lower middle-market companies.
Minute 2: Operational Restructuring vs Financial Restructuring
Operational restructuring focuses on reorganizing the business’s core activities, processes, and structure to improve efficiency, productivity, and profitability. This may involve cost reduction, streamlining operations, optimizing resources, and repositioning the brand.
On the other hand, financial restructuring involves modifying the company’s capital structure and debt obligations to improve its financial viability and stability. This may include refinancing, restructuring loans, extending maturities, lowering interest rates, converting debt to equity, or issuing new securities. While operational restructuring aims for long-term growth and profitability, financial restructuring can provide immediate relief and flexibility, but may entail significant costs and risks.
Cedar Croft Consulting with its multi-disciplinary professional team initially focuses on operational restructuring for lower middle market companies. The amount, urgency, and cost/benefits of financial restructuring required are determined by what can be obtained from an operational restructuring.
Minute 3: Collaborate for Survival
Businesses grappling with economic headwinds and higher default rates are engaging lenders to avoid bankruptcy by accepting stricter loan conditions. As the default rate rises in the Morningstar LSTA US Leveraged Loan Index, there is a growing focus on restructuring efforts.
Legal experts suggest companies seek amendments and loan term extensions to mitigate financial pressure. Lenders, cognizant of public relations, show a propensity for flexibility. The rising interest rates compound financial strain, prompting businesses to seek urgent restructuring advice.
High-profile cases like Yellow Corp.’s bankruptcy highlight the challenges and strategic financial negotiations companies undertake to secure more favorable lending terms in a tight market. Privately held companies have similar restructuring pathways to public ones, with some exploring alternative financing options like single-asset vehicles and net asset value lines. Companies and lenders are exploring all available options to navigate the challenging economic environment.
Minute 4: Quick Intervals
- Artificial Intelligence Tips – Fireflies.ai is an AI-powered tool that offers various benefits for meeting management. It provides accurate meeting transcripts, customizable AI-generated meeting summaries, and a searchable knowledge base of conversations. Users can tailor meeting notes, extract key information, and automate the summary-writing process. The app is praised for its ability to improve team performance.
- Cryptocurrency Fallout – Celebrities impacted by the cryptocurrency collapse include Paris Hilton, Kim Kardashian, Ashton Kutcher, Gwyneth Paltrow, Reese Witherspoon, Tom Brady, Steph Curry, Joe Biden, and other high-profile people. Their endorsements and investments in various cryptocurrencies and related companies have been affected by the market downturn and the collapse of certain crypto exchanges.
Minute 5: Cedar Croft News
Cedar Croft Announces Expansion with New Tampa Office
Our strategic expansion signifies Cedar Croft’s commitment to extending its reach and furthering its mission to provide top-notch consulting services.
Read the full press release here.
Current and Recent Engagements
Quick service restaurant chain, Northeast US. – Cedar Croft is engaged by this third-generation family-owned and operated business as a Financial Advisor to negotiate and secure financing for its acquisition and expansion strategy.
Bakery, Northeast US. – This private wholesale bakery and food production company was recently moved to the workout department with its senior lender, as cash flow from operations could no longer support the debt service with the rise in interest rates. Cedar Croft was engaged as a Financial Advisor to identify and evaluate options available and lead negotiations with its senior lender.
Engineering services firm, Washington, DC. – This second-generation-managed business provides aerospace and aeronautical engineering services as the prime or sub on government contracts. Cedar Croft is engaged as a Financial Advisor to facilitate project financing and maintain lender relationships.
Plastic resin distributor, Southeast US. – Cedar Croft completed its engagement as Chief Restructuring Officer, which resulted in an out-of-court refinancing that paid its senior lender in full and provided the company with working capital for its owner to continue operations.
Aircraft maintenance, repair, and overhaul firm, Ontario, Canada. – Cedar Croft completed its engagement as Chief Restructuring Officer to develop and implement a plan of reorganization for this company operating under CCAA protection. The company was sold under a Sale and Investment Solicitation Process.
Selected case studies from our earlier work can be found here, on our website.
Upcoming events
Cedar Croft has sponsored and/or will attend these events in 2024:
- New York Institute of Credit Women in Achievement Awards
New York, NY – Jan. 31 - TMA Distressed Investing Conference
Las Vegas, NV – Feb. 6-9 - TMA Florida Annual Conference
Tampa, FL – Mar. 4-6 - National Jewish Health Financial Industries Dinner
New York, NY – Mar. 7 - SFNet Atlanta Member Appreciation Event
Atlanta, GA – Mar. 7
Cedar Croft Consulting provides turnaround, workout, crisis and interim management, corporate restructuring, bankruptcy, financial advisory and distressed M&A services. We serve lower and middle-market companies throughout the US and Canada. For further information, contact Pat Walsh at 917-674-2273.
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