Special Situation Finance

Client Background

The company in this case has been into food processing for more than 4 decades. The company has 3 units in the vicinity of Delhi NCR, each into a different food segment spread over baby food ingredients, dehydrated fruit & vegetables, ketchups, jams, and breakfast cereals, oats, etc.

About the Transaction

The company commissioned a new plant into breakfast cereals 3 years ago with a heavy capital expenditure of more than INR 4000 million. The capacity off-take of the said plant got delayed due to long drawn processes of target clients (reputed MNCs like Nestle, Kellogg’s, PepsiCo, etc.) in recognizing the company as an approved vendor.

The company had availed term debt to the tune of INR 2140 million to part-finance the plant and due to delayed ramp-up. It started facing liquidity issues which made it imperative to recast the entire debt.

Problem Statement

The company in focus had an existing, high debt of about INR 2750 million and had a low EBITDA.  The delay in capacity ramp-up had been leading to liquidity issues, and thus a subsequent delay in loan servicing. Multiple lenders per unit were also leading to operational hassles for the company.

The EBITDA levels of the company presented a difficult debt: EBITDA ratio of 10x and structuring the debt recast presented its own unique set of challenges.

Goal Of The Transaction

The goal was to refinance the entire term debt with fresh moratorium, thus easing out cash flows for the company, and to consolidate the entire term debt and WC between two lenders.

Coinmen’s Role

  • To start things off, we reworked the company’s financial projections, and created EBITDA milestones.
  • We prepared the required transaction structure, identified lenders, and assisted in due diligence and credit rating improvement.
  • Coinmen assisted the company in planning the entire refinance road map, carefully projecting future numbers which could facilitate the required lending.
  • Coinmen helped the company in raising structured special situation debt to the amount of INR 3000 Million which refinanced the entire term debt availed for the new plant along with additional funding support in the form of long-term working capital. The debt was structured between the operating and holding companies to leverage the available non-core assets and balance sheets appropriately.
  • In parallel, Coinmen also assisted the company in consolidating entire working capital requirements of the company with the largest PSU lender on extremely competitive rates (less than 9%). We helped the company restructure the existing working capital arrangement of the company with multiple lenders (which had earlier led to high cost, leading and operational hassles).

Outcome Of The Transaction

  • Ultimately, the company decided to end relations with more than 6 lenders and consolidated the entire term debt and working capital, clearly segregating it between 2 lenders on competitive pricing and fresh moratoriums.
  • This gave the company a much-needed cash flow comfort & allowed it to ramp up its capacities and bring in operational efficiencies due to lesser number of lenders.
  • Additionally, the company was also able to have an important operating asset released as security charged with previous lenders.