A New York Importer of Consumer Household Goods

has been recapitalized with
$33 million of non-recourse credit,
funding a $10 million upstream dividend to the parent company.
 
The undersigned advised the company in this transaction.

Crallé & Company

The Situation     A former NYSE holding company had financed it’s “going-private” transaction five years earlier with credit cross-guarantied by its five operating subsidiaries.  Our mandate was twofold: to replace and extend the incumbent lender’s current $11 million revolving line of credit, and to fund the largest possible upstream dividend from subsidiary to parent without recourse or guaranty, targeting $10 million.

The Process     Crallé prepared a transaction memorandum including financial projections and due-diligence materials and negotiated with more than twenty major bank and non-bank lenders

Initially we proposed a dual tranche arrangement, a revolver secured by working capital to fund operations, and an amortizing term loan secured by all other assets to fund the non-recourse dividend.  Working closely with proposing creditors to find a structure amenable to their own internal guidelines, we helped to develop several other acceptable structures:

• The import finance subsidiary of a major commercial bank proposed a revolver of up to $31 million by unconventionally recognizing the minimal exposure of the company’s letters of credit outstanding (namely, that LCs represented the cost basis of product and that, since orders had been placed by the company only upon receipt of orders from its own customers, conversion to a higher value receivable would follow immediately upon receipt and re-shipment from the company’s warehouse).  Whereas most other institutions reduced availability by a factor of LCs payable, this institution would reduce availability not at all.  The effect was that they proposed to advance the total of requested funds entirely under their revolver availability formula.
• A non-bank finance company also relied upon their own proprietary understanding of LC exposure and proposed a revolver of up to $33 million.  Whereas commercial bank lenders generally applied regulatory-stipulated reduction of availability of gross LC exposure, this institution recognized the substantive hedge of letters of credit received from the company’s own customers (substantively “back-to-back”).  By netting the receivable LC against the payable LC, they also were able to propose advancing the total of requested funds entirely under their revolver availability formula.
• A commercial bank that advertises its middle-market focus and expertise, involved their credit staff early and, recognizing that only finalists get the opportunity to make a meaningful marketing pitch, proposed a combined revolver and term loan totaling up to $30 million, including the largest possible dividend they would finance without guarantee, and supplemental dividends to the extent guaranteed by the parent.

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Crallé & Company, Incorporated
Bronxville, New York
914-779-3331