Journal of
Corporate
Renewal
June
2015
not be what you want to see, when you
have to go into a liquidation program.
That said, there’s still a right way to do
it insofar as obtaining the principals’
cooperation and having it be an orderly
process that maximizes value versus
a free fall and contentious process.
The ability to be creative is really the
other aspect I enjoy. You’re not as boxed
in as the people that are on the front
end of the business may be. There are
certain parameters that they need to
adhere to in terms of how they structure
their deals and what they can do with
customers. On the workout side, you’re
much more able to be somewhat flexible
and creative on how you develop
programs to resolve your issues around
the relationship. Each situation is unique,
each personality that you’re dealing with
is unique and, as a result, you are able
to cobble together somewhat situation-specific solutions and programs.
Q What have been some of the most gratifying or favorite workouts that
you’ve done?
At a prior bank, we had a
deal that involved a large cooperative that
was involved in remarketing livestock.
They had over 40 locations in the
Midwest and generated annual sales of
roughly $1 billion. One of my staff needed
to go on medical leave, which resulted in
my needing to pick up the file. As I got
into it, I found that there were a number
of issues on the structure, in particular on
the borrowing base and collateral support
for the relationship. At the same time, this
particular cooperative was in the process
of being sued in connection with an
acquisition that had gone bad several
years previously. There was a lot of fraud
involved, not on their part, but on the part
of the party that sold this particular
business to them.
Unfortunately, a jury trial verdict for
$25 million had been adjudicated and
been awarded against this co-op with
the judgment yet to be filed. We had
at the time about $120 million in total
facilities into this co-op. The question
was, how quickly were they going to be
able to file that pending judgment and
ultimately create issues for our customer?
We retained bank counsel and then
proceeded to work with the customer,
their counsel, and their turnaround
consultant to assess where things were
and what options might be available.
First of all, we wound up getting all of
the collateral at the co-op to come to
our position. That included over 40
facilities that they used for their business.
We also amended our borrowing base
to account for significant PACA claims
on the part of the livestock producers,
as well as restructuring our facilities,
which further involved a parent entity
down streaming funds to a subsidiary.
The primary issue associated with
obtaining the additional collateral
and restructuring the facilities was
the related 90-day perfection period
prior to filing a Chapter 11 bankruptcy,
which we had determined was the
only viable mechanism to allow
for a restructuring to occur.
Another key issue was that the co-op had
close to 18,000 farmer producers they
worked with. Farmers would bring their
livestock, primarily cattle, to the co-op’s
facilities, and have the co-op sell off the
livestock through an auction process.
Then the co-op would issue a check
from those auction proceeds back to the
respective farmer that had sold cattle or
other livestock. The problem was, at any
given point, they had roughly $20 million
of checks outstanding to these farmers.
As a result, if we filed a bankruptcy, the
farmers would not get paid because
the checks could not be processed and
would bounce. Respective farmers, based
on their PACA rights, would have priority
claims on the proceeds. However, they
would need to process their claims in the
filing and ultimately be paid through a
reorg plan, a time-consuming process.
The problem is, once you bounce
a check to a producer, they would
likely be very hesitant to do business
with you again, notwithstanding the
likelihood of getting their money
back by filing a claim on the estate.
What we came up with to address this
issue was having the co-op’s facilities
shut down for a period of time to
undergo a cleaning and upgrading
process. The company would not hold
auctions during that period. This would
then allow for the checks that had been
issued for auctions prior to the shutdown
to clear in the ordinary course.
When the co-op filed bankruptcy
after a two-week shutdown period,
instead of having $20 million in checks
outstanding, they were down to roughly
$1 million. When we opened the co-op
again for business—we filed, I think, on a
Friday and opened up for business on a
Monday, starting the auctions again—the
farmers were right back. Very few were
impacted by having checks bounce.
We also needed to go through
a contested filing with a plan of
reorganization because, as it turned
out, the judgment creditor finally did
move along and get their $25 million
judgment filed, although now that we
were in a bankruptcy, their claim was
to try to take control of the co-op. We
went through a contested reorganization
filing and plan confirmation, and were
able to get that done, processed through
testimony, including valuation hearings,
and ultimately had the plan confirmed
within 30 days of filing and 120 days
after we had taken the collateral. The
co-op successfully came out of the filing
and remains a valued and performing
customer of the bank to this day.
Q There were a lot of moving parts there.
A lot of moving parts. I had
another company I worked with a
number of years ago here in Rochester
that was a fairly significant employer. We
went through a roughly two-year
restructuring program that involved
shutting down some underperforming
divisions, yet continuing to work with the
company to provide them with some
additional capital to support the
restructuring process to get them back on
their feet.
What was good about that—this was,
gosh, 20-plus years ago—they stayed
with the bank in the aftermath and have
continued to be a customer of the bank.
I ran into the principal the other day at
a function, and he was very friendly,
very cordial, and introduced me to his
son, who is now an accountant here
locally. When you see how that type of
situation involving a family business is
successfully resolved, albeit when we’ve
needed to make some difficult decisions
through a restructuring process, to me
that is a success. That really makes the job
worthwhile and rewarding. The business
is still with the family. They’re still very
active members of this community.
Q Who have been some of your inspirations along the way, either
personally or professionally?
I’d have to say my first
manager at Security Trust comes to
mind. He taught me a lot about how to
balance what people say in terms of what
they’re representing the situation to be
