Negotiated Settlements – Case Studies

Negotiated Settlements

Three and one half years ago, we met members of a family owned business in severe financial distress, caused by the downturn in the economy and the carrying of heavy debt.  Bankruptcy was not an option.  The business had earlier moved to a new location in a like kind exchange of property.  It had also taken on a substantial mortgage despite the full knowledge of the bank of the existence of environmental contamination.  It has purchased a similar business and owed to the sellers a high interest bearing obligation that was then in default.  Add to this a substantial amount of unsecured debt that was way past normal credit terms and it was no wonder that the family felt discouraged and hopeless.

We analyzed the components of the situation and determined the critical piece was the satisfaction of the secured debt to the lender.  Taking advantage of an acknowledged mistake of advancing against contaminated property, we were able to achieve a settlement on a renegotiated mortgage that was both affordable and reduced overall debt by $900,000.  Next, we were able to negotiate a settlement with the junior secured creditor representing the seller of a business purchased earlier.  To effect this, we secured a commitment from a quasi-public finance agency that provided a additional amount for the first mortgage lender and sufficient funds for the negotiated settlement of the balance of the junior creditor as well as some critical working capital which was partially used to negotiate some long outstanding unsecured debt.  The net effect of this extended effort was the elimination of over $1.5 million of debt, the restructure of the remaining bank debt on affordable terms and the embarkation on a slow progression back to financial stability.  Recently, a competitor contracted with our client to produce on a private label basis, all of its output.  The competitor provided all of the requisite equipment for production and this current year, revenue will more than double, providing for meaningful economies of scale and the potential for significant profitability.