Case Study: RJ Industries, Inc.
Specialist Advisory and Financial Restructuring Services
With the banks still reluctant to extend loans to smaller businesses, many small business owners and CEOs find themselves struggling to secure the working capital they need. If a business happens to have a troubled relationship with its bank or with key suppliers, or both, the situation can become critical. In many cases, it is the bank that pushes the small business firm over the edge.
If your business is under pressure, it is essential to bring in a qualified financing specialist as soon as possible, as this case study illustrates. At US Capital, we are skilled at helping smaller businesses navigate difficult situations. What makes us unique is that we not only provide funding, but also offer specialist advisory and financial restructuring services. Our ability to assess complex or special situations quickly and provide solutions outside the bankable box has made us one of the most innovative small to middle-market investment banks and lenders in the country.
About RJ Industries, Inc.
RJ Industries, Inc. (“RJI”) is a regional auto parts and accessories distributor based in Ukiah, California. The company has five additional business locations in California (in Willits, Upper Lake, Lakeport, Kelseyville, and Clearlake) and about a thousand wholesale customers in the region. A family business passed down over three generations, RJI has been operating for 76 years.
The Problem
Like many smaller companies, RJI started running into problems in 2007–09 with declining sales. The company had a line of credit with a regional bank, and unfortunately, it was unable to recover profitability quickly enough to maintain this lending relationship. Its losses and decline in enterprise value led to a covenant breach and a minor, technical breach on its borrowing base certificate. The bank lost its patience and put the company in forbearance in 2009.
RJI not only urgently needed financing to repay the bank, but also to provide additional working capital to bridge the gap between collecting AR and paying vendors. RJI’s primary supplier, a major national auto parts manufacturer, was aware of the company’s borrowing problem. It began applying pressure on the supply side, too.
RJI’s relationships with its bank and primary supplier were by this stage seriously weakened. RJI was in critical and imminent danger: its creditors were about to come in and liquidate the business. RJI turned to the US Capital team for help.
Finding a Solution
The case of RJI exemplifies the typical aggressive reaction of banks, the pressures that many small businesses find themselves under when they are forced to exit their bank, the challenges they face when trying to refinance, and the serious problems that arise when the situation is not managed properly. In the case of RJI, the company left it till very late before bringing the US Capital team in as their financial advisor.
RJI brought in US Capital both to refinance the company and to manage its troubled relationships with its supplier and bank. US Capital is a full-service lender and investment bank for smaller businesses with in-depth expertise and experience in financial restructuring.
The US Capital team was able to offer additional financing to provide sufficient capital for RJI to recover. The bank agreed, but the deal broke down because the national supplier was unwilling to cooperate. The bank had a blanket lien on the company. Unknown to RJI, but discovered by US Capital, the national supplier had a blanket lien on the company too, which complicated the issue. This made it close to impossible for RJI to obtain any additional leverage on any of its assets.
US Capital then advised RJI on how to manage and navigate what was by this late stage a very serious situation. There was nowhere to go except liquidation and bankruptcy for the owners, on account of personal guarantees. The US Capital team provided a 6-month advisory and was able to negotiate with the supplier for a more favorable purchase price, and with the bank for a discount on the debt. US Capital’s advisory efforts resulted in an exit through sale without the need for the principals to file personal bankruptcy. Through the US Capital teams’ intervention, some debt was forgiven, the business was sold, and the owners were able to retain their personal and commercial real estate assets.
As this case study illustrates, it’s important to bring in lenders and financing specialists sooner rather than later. But even in a late and seemingly intractable situation, US Capital can be instrumental in engineering a pathway that is least damaging to the client and its stakeholders.
Specialist Advisory Services
The US Capital team always looks for the best possible financing solution for its clients. Sometimes the pathway to refinancing is clear; at other times it is less so. At US Capital, we not only provide funding as a direct lender, co-lender, and lead financial arranger, but also offer bespoke advisory and financial restructuring services.
Our specialist advisory service is very timely in the current climate. There is a much greater need for this kind of service now, given the recent regulatory changes in the financial markets and the ongoing global financial crisis and economic downturn. When lenders lose patience with borrowers, there is often insufficient financing available for these borrowers to take the lenders out. These and other challenges call for an experienced specialist to negotiate and manage the refinancing or restructuring process to a successful outcome.
At US Capital, we have in-depth knowledge of the small-cap lending market. We have cultivated close contacts and strategic relationships with a wide range of suitable lenders. We are able to bring these lenders together, speak their language, and solve the various technical issues that may arise in the refinancing process. Importantly, we are able to provide financial opinions from a lender’s perspective, and not simply from a consultant’s perspective. This allows us to provide optimal financing for you quickly and efficiently. These attributes differentiate us from our competitors, and make us the refinancing and restructuring specialists of choice in the small business arena.
About US Capital Global
US Capital Global was founded by Jeffrey Sweeney as an alternative asset manager that leverages a track-record of successful fund management and of debt and equity investments in small and medium-sized businesses. The firm offers both independent investors and institutional investors an opportunity to invest in a variety of private investment funds designed for the different risk tolerances and investment objectives of accredited investors.
To learn more about how your business can secure the investment banking services it needs, email Jeffrey Sweeney, Chairman and CEO, at jsweeney@uscapglobal.com or call (415) 889-1010.