Background: CRS was approached by a renowned turnaround team that took over management of a large US specialty transportation company experiencing negative financial performance due to management and operational challenges. As a result, the Company had lost the confidence of their primary lender, who was unwilling to provide additional capacity for growth. Included in the bank facility were $150MM of letters of credit (“LC”) posted to insurers, state self-insured funds and sureties. The LC levels increased each year due to continued adverse loss development, and a lack of critical claim handling and/or aggressive case closure initiatives at the Company.
After an initial review of the claims experience, actuarial and credit discussions to provide a financial update on the new business trajectory, CRS introduced alternative credit facilities potentially could replace the LC’s posted (in effort to capture necessary liquidity & create off-balance sheet credit capacity outside of the traditional banking / insurance system). CRS secured engagement with the primary insurer to reduce demand of additional collateral at renewal, and to accept surety for a portion of the collateral pool held. Each of the alternative facilities provided CRS unique solutions to eliminate liquidity drain caused by posted LC’s (significant unsecured surety bond capacity and a creative surety-backed bank fronted solution, a replacement LC via an SPV multi-client pooling and a large reinsurance program to a bank panel, respectively).
Action: CRS directed the alternative facilities and the stellar turnaround team to powerfully highlight the key operational and financial initiatives to drive profitability and credit worthiness. EBITDA run-rate tripled over a 6-month period reducing net leverage to 0.5x. The Company’s performance went from $3M to $60M EBITDA and drove 30-40x value. Over the course of CRS’ involvement the new financial and business heads at the transportation company, presented a slide deck to the new facilities and to the GL and Auto carriers, evidencing operational, credit and balance sheet improvement, along with better terms via negotiation of a new credit facility which resulted in initial goals being achieved: the Company received terms permitting a replacement of $75MM in LC’s, and replacement of another $75MM LC from a prior off-balance sheet transaction at a significantly reduced fee with no collateral.
Outcome: Through a very innovative and challenging process, within a compressed timeframe, CRS identified 3 different facilities to relieve collateral need, utilize a combination of traditional surety bonds and off-balance sheet financing and materially enhanced the Company liquidity and satisfied carrier partners with the result and neutralized the perceived credit risk of the Company. Ultimately, the process was identified and run by CRS, alleviated additional collateral posting, enabled the Company to access significant capital via its remaining revolver, enhanced liquidity by $150M and created a deeper partnership between GL and Auto carriers with the Company, given an enriched financial picture and outlook.