The Cedar Croft Consulting 5-Minute Mile News is issued quarterly. Please contact us if you’d like to be added to our newsletter email list.
Minute 1: Falling Interest Rates – Impact on Workouts
Falling interest rates significantly impact how bank workout groups handle problem accounts. Lower rates generally improve borrowers’ cash flows by reducing interest expenses, especially for variable-rate loans. This can ease financial pressure on struggling companies and reduce the urgency of workout situations.
Workout groups gain more flexibility in restructuring problem loans, as they can offer more favorable terms such as lower rates or extended repayment periods. This increases the chances of successful restructuring rather than foreclosure.
Banks are more likely to pursue forbearance or restructuring over liquidation when interest rates are lower, especially when real estate collateral is involved. However, falling rates can also squeeze bank profit margins, potentially leading to less patience with problem loans.
Refinancing opportunities may arise for some borrowers, allowing stronger companies to exit workout situations. Banks may need to offer competitive terms to retain relationships with improving borrowers.
The broader economic conditions driving lower rates are also relevant, as economic weakness could lead to more problem loans overall, straining workout resources. Ultimately, workout bankers must balance the potential for improved borrower performance against the bank’s risk management and profitability goals.
Minute 2: Environmental, Social, and Governance (ESG) Considerations in Restructurings
ESG factors are increasingly influencing restructuring and bankruptcy processes. Lenders and investors are placing greater emphasis on ESG performance when evaluating distressed companies.
Workout groups must consider how ESG issues might affect a company’s long-term viability and restructuring options. For instance, companies with poor environmental practices may face higher compliance costs or reputational risks that impact their turnaround potential.
Bankruptcy attorneys should be prepared to address ESG-related liabilities and incorporate sustainability considerations into reorganization plans. Both groups may need to work with ESG specialists to assess risks and opportunities properly.
As ESG gains importance in the financial world, its integration into restructuring and bankruptcy practices will likely increase.
Minute 3: Supply Chain Disruptions and Their Impact on Restructurings
Ongoing global supply chain issues affect businesses across various sectors, potentially leading to financial distress and restructuring needs. Companies facing prolonged disruptions may struggle with inventory management, increased costs, and revenue shortfalls.
These challenges can result in liquidity problems and potential defaults on financial obligations. Workout groups should be prepared to assess the long-term viability of affected businesses and consider creative solutions that account for supply chain uncertainties. Bankruptcy attorneys may need to address supply chain-related issues in restructuring plans, such as renegotiating supplier contracts or implementing operational changes.
Both groups should stay informed about industry-specific supply chain challenges and be prepared to develop strategies that address these ongoing disruptions in restructuring scenarios.
Minute 4: Quick Intervals
Artificial Intelligence – Rabbit R1 Review
As indicated in my last newsletter, I eagerly awaited my delivery of the Rabbit R1, a new device from Rabbit Inc. that aims to redefine how we interact with technology. Rather than relying on traditional app-based interfaces, the R1 uses a LAM as its core AI system. This allows the R1 to understand voice commands and directly execute actions across various applications and services, without the need to navigate multiple apps.
Shortly after I received the product in early June, the excitement wore off, as the R1 fell short of its ambitious promises. The device struggles with basic tasks, often providing inaccurate information or failing to execute commands properly. The R1 is not yet ready to replace or even complement smartphones effectively. Potential buyers should wait for further development and improvements before purchasing.
The upside is the device comes with a one-year subscription to Perplexity AI, an AI-powered search engine that provides concise, cited answers to queries using natural language processing. It combines chatbot functionality with real-time web search capabilities, and I find it extremely useful as it draws on current information.
The Great Bankruptcy Bake-Off
In a lighthearted twist on team-building, a group of restructuring professionals organized “The Great Bankruptcy Bake-Off.” Participants were challenged to create desserts representing famous corporate collapses.
Highlights included a “Lehman Brothers Lemon Tart” with a crumbling crust, an “Enron Energy Bar” that mysteriously disappeared, and a “Blockbuster Blue Raspberry Swirl” that nobody wanted to rent. The event culminated in a mock creditors’ meeting where desserts were “liquidated” through taste-testing.
The winner? A “Chapter 11 Chocolate Surprise” filled with unexpected assets (in the form of candy). Participants agreed it was the sweetest deal they’d ever negotiated.
Minute 5: Cedar Croft News
Current and recent engagements
E-commerce Apparel Business, Northeast US
Cedar Croft Consulting has been engaged as a Financial Advisor for a direct-to-consumer men’s apparel distributor that recently defaulted on its credit agreement and was moved to the lender’s workout group. Cedar Croft will assist the company in developing and implementing a plan to address liquidity shortfalls and covenant defaults with its lender.
Quick Service Restaurant Chain, Northeast US
Cedar Croft Consulting has been engaged as Interim CEO of a quick-service restaurant chain with operations in the Northeast and Southwest of the United States. Cedar Croft will reposition the company to achieve the growth goals set by the fourth-generation owner.
Wholesale Bakery, Northeast US
A privately held wholesale bakery and food production company recently moved to the workout department with its senior lender due to cash flow from operations no longer supporting debt service following interest rate increases. The company engaged Cedar Croft Consulting as a Financial Advisor to identify and evaluate available options and lead negotiations with its senior lender. According to the senior lender, a recapitalization plan has been approved.
Engineering Services Firm, Washington, DC
Cedar Croft Consulting has been hired as a Financial Advisor for a second-generation-managed business providing aerospace and aeronautical engineering services as the prime or sub on government contracts. Cedar Croft’s role is to facilitate project financing and maintain lender relationships.
For more case studies, visit our website here.
Upcoming Events
Cedar Croft is sponsoring and/or attending the following conferences through the end of 2024.
- TMA Annual Conference
Philadelphia, PA – October 15-18 - TMA Upstate New York Event
Rochester, NY – October 24 - TMA Southeast Regional Conference
Savannah, GA – October 30 – November 1 (rescheduled) - TMA/NYIC Holiday Reception
New York, NY, NY – November 6 - SFNet Annual Conference
Houston, TX – November 13-15 - SFNet & TMA South Florida Holiday Reception
Boca Raton, FL – December 4
Cedar Croft Consulting provides turnaround, workout, crisis and interim management, corporate restructuring, bankruptcy, financial advisory, and distressed M&A services to lower—and middle-market companies throughout the US and Canada. Contact Pat Walsh at pw****@ce******************.com or 917-674-2273.
