Situational Overview : A service company needed additional time before it could successfully refinance a group of frustrated lenders. Over the past two years, the company had to seek numerous modifications to its credit agreement as it turned around its operations. Although the turnaround was successful and was beginning to be reflected in the financial results, the lenders were in no mood to extend the maturity of the revolving line of credit. A refinancing of the facility was simply not available as the entire capital structure of the company would need to be refinanced.
Resolution : While the revolver lenders were fatigued by the modifications, there were other investors interested in lending to the company. A proposal was put forth to the revolver lenders where they agreed to extend the maturity date of their loan by one year, under very generous terms, and the new lenders would buy them out of their revolving loan. All of the revolving lenders agreed to the proposal and ultimately sold out of their positions.
Results : The company successfully added another year for their turnaround efforts to fully develop. This additional time allowed the company to refinance its total capital structure with very market-favorable terms. The company understood that the additional yield they had to pay on the extended loan was well worth the cost, since it bought the company additional time and avoided a costly and avoidable bankruptcy.