A boutique law firm with several loan covenant violations was told by its bank to find a new lender. The Firm specialized in representing insurance companies and was dependent on one insurance company for 94% of its revenue. In an effort to reduce costs, the insurance company brought some of the work in-house causing a 20% reduction in revenue for the Firm. Despite the decline in revenue and profit, the partners did not reduce the amount of their annual distributions and personal spending. This resulted in negative equity of $800,000 on the Firm's balance sheet and the Firm's two senior partners became two years delinquent on their personal federal and state taxes for a total of $725,000.
The Firm contacted a number of lenders, but was turned down by all. One of the banks that turned the Firm down referred the Firm to Asset Enhancement Solutions, LLC for assistance in identifying the appropriate lender.
Asset Enhancement Solutions, LLC ("AES") prepared the appropriate narrative and analysis to present both the Firm and its senior partners in the best way possible under the existing circumstances.
The Firm's existing loan was structured as a line of credit with a monthly borrowing base. AES contacted several aggressive asset based lenders so that the Firm could have a new credit facility somewhat similar in structure to what it had been used to. Unfortunately, none of these lenders had the appetite to do an asset based loan with all the Firm and partner issues. Instead they all wanted to structure the transaction as the purchase of accounts receivable/factoring on a full notification basis.
The Firm had major issues with "full notification" factoring whereby the Firm's major client would become aware that it entered into a factoring agreement selling its accounts receivable to a financial institution. First, the agreement the Firm had with its major client prohibited it from selling its accounts receivable. Secondly, the managing partner feared that its major client would think the firm was financially challenged and further reduce the volume of business it directed to the Firm.
AES was successful in arranging financing with a factor that was willing to purchase the Firm's accounts receivable on a "Non-Notification" basis whereby the Firm's clients would not become aware that the Firm entered into a factoring agreement and had sold its accounts receivable.
In an effort to reduce expenses the Firm desired to relocate to less expensive space. The Firm needed $300,000 for the costs relating to the move. AES was also able to arrange a $300,000 term loan for the Firm for its moving costs.
Because availability was very tight, the Firm was afraid that during the changeover to the new lender there could be timing issues with the old lender forwarding customer payments to the new lender thus causing the Firm difficulty in meeting its next payroll. AES convinced the new lender to provide the Firm with a $150,000 bridge loan so that the Firm would have no problems meeting its next payroll.
The Firm's managing partner was thrilled by all that AES was able to accomplish for the Firm.
Neil Seiden, 516-767-0100
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