By Rob Taylor, Managing Director, Strategic Financial Consulting
Having a turnaround plan and understanding whether it can actually work are two different things. In a distressed situation, that distinction can carry significant weight. For lenders, restructuring may provide an opportunity to keep a borrower solvent and operating versus an immediate liquidation. But before determining whether a turnaround is the right path, there are some important questions to consider. Are the forecasts reasonable and reliable? How much cash does the business really need? Can management deliver the improvements being projected?
In these situations, having the right financial perspective behind the plan can help lenders better understand what is workable and what may need to be challenged. In one distressed credit situation, LCG’s Strategic Financial Consulting (SFC) team was brought in as Chief Restructuring Officer (CRO) to work with the lender and its borrower to develop a workable path forward.
A Plan Has to Work in Practice
At the outset, LCG’s SFC team was engaged to work with the borrower and lender to develop a restructuring plan that was reasonable for the business, acceptable to the bank, and provided an opportunity to recover more than the liquidation value of its collateral. That meant going beyond simply building a forecast. Revenue growth, margin improvement, reduced expenses, improved collections, and other operational changes can all make a turnaround model work on paper. But someone still has to deliver them.
LCG worked through the company’s financial position, cash requirements, projections, and underlying assumptions to understand what would actually need to happen for the plan to work. At the same time, our team provided the bank with a financial and accounting resource to help evaluate those assumptions with a deep understanding of the lender’s perspective. The goal was not to find a set of numbers that worked, but rather to develop a plan the numbers could support.
The Financial Perspective Behind the Plan
Management is focused on what the business can accomplish operationally. The lender needs to understand what those expectations mean for the credit. On the bank’s side, Special Assets teams are focused on managing the troubled loan and limiting the bank’s potential downside. A hands-on financial and accounting perspective can help bridge the gap between what management believes the business can accomplish and what the lender needs to evaluate from a risk perspective.
In this case, LCG worked across the borrower, lender, and other advisors to dig into the assumptions behind the proposed restructuring strategy and help each party understand what the numbers meant in practice. It wasn’t simply a matter of “blessing” the model. It was about understanding what management expected to happen, what needed to happen financially, and where those expectations aligned or didn’t. Ultimately, both sides needed to answer the same question: Does the plan hold up when we get underneath the numbers?
Because Plans Change
Even a well-developed restructuring plan can be thrown off course in a distressed situation. Performance can shift, cash can tighten, new information can surface, or a borrower may take a different course of action. Suddenly, the original model may no longer answer the questions in front of the lender. That doesn’t mean starting from scratch. It means understanding what changed and what those changes mean for the options still on the table.
In this case, when circumstances changed, LCG worked alongside the bank and its legal counsel to reassess the financial picture and evaluate what the available paths could mean for the lender. More broadly, depending on the situation, that may mean revisiting the turnaround plan, evaluating a potential sale, or considering another path toward recovery. The plan may change. The need to understand the numbers behind it doesn’t.
Conclusion
A turnaround may preserve more value in one situation. A sale may provide the better path in another. In some circumstances, liquidation may ultimately make the most sense. The answer depends on the business, the credit, and what the numbers are saying. For lenders, having reliable financial information and the right resources to interpret it can make those decisions clearer.
Throughout a restructuring, different advisors bring different perspectives to the table. Legal counsel addresses the legal considerations. The bank’s Special Assets team manages the credit and protects the bank’s interests. LCG brings a hands-on financial and accounting perspective to help lenders understand the forecasts, assumptions, liquidity needs, and financial realities behind the restructuring strategy. The path forward may look different in every engagement. The goal is to give lenders the financial clarity they need to understand their options and make informed decisions about what comes next.
LCG’s Strategic Financial Consulting division works with lenders, private equity firms, and businesses navigating restructuring, liquidity challenges, and other complex financial or operational situations. Our professionals provide hands-on financial and operational support to help stakeholders evaluate options and work toward a practical path forward. For questions or to schedule a consultation, contact Scott Webb at [email protected].