THE SITUATION: Overleveraged power cable manufacturer requires rescue financing
Founded 50 years ago, Solidal is a leading power cable manufacturer with a production facility near Porto, Portugal. It supplies cables to transmission and distribution companies, and contractors and wholesalers around the world.
Under the ownership of the Quintas Group, Solidal had carried an overleveraged balance sheet since early 2000, when a series of investments in Brazil and Angola collapsed. The company was also saddled with a bloated cost structure, with excessive layers of management and onerous renumeration of the Supervisory Board.
In early 2018, persistent payment delays led to the removal of credit insurance, while lack of liquidity and an absence of financial support from the banks hampered the purchase of raw materials, which saw production dwindle. Production slowed through Q2 2018 and finally came to a halt in July 2018.
After Solidal’s key supplier of aluminum executed its bank guarantee, the company missed payroll for its 363 employees in July 2018 and was on the verge of insolvency. At this stage, its senior creditor, Njord Partners, approached the controlling shareholders to negotiate the terms of a rescue financing.
The approach: Consensual restructuring and financing
Financing and change of control was achieved via a consensual restructuring by shareholders. This involved a series of complex transactions lasting until December 2019. These included bridge financing, a shift in the center of main interest from the Luxembourg holding company (the senior debt borrower), the appointment of UK administrators at the holding company, and an open market sale process and credit bid.
Transactions also included the use of the Portuguese RERE (“Regime de Recuperação Especial de Empresas”) procedure for restructuring, c.€28m of local sale, leaseback and revolving facilities, and the consensual restructuring of another c.€16m of bank facilities and factoring lines in Spain and Portugal.
AlixPartners was appointed to develop new sales and operations planning processes, and to implement new supply chain procedures. The management of raw materials was devolved from Production to a new Incoming Materials function, and control was returned to the manufacturing area by reducing/removing interference over the production schedule. The SAP ERP system was effectively re-implemented so that orders could be tracked as they were fulfilled, and material requirements forecast from demand.
From late 2018, Njord Partners implemented rigorous liquidity management procedures and moved to regain the confidence of clients, suppliers, employees, and lenders. This included a roadshow with key utilities customers to stem the cancellation of framework contracts that had been in default. The vast majority of the order book was kept intact, allowing production to catch up and delayed orders eliminated over the course of four months.
Finally, the Supervisory Board was dissolved, and a new management team was formed, with Njord Partners appointing the acting CRO, and a CEO, Director of Production, and Supply Chain Director installed.
The solution: Revenues return to historic levels
Thanks to decisive action on the part of the senior creditor, and AlixPartners’ expertise when it really matters, Solidal’s revenues have recovered to historic levels, growing from €32.6m in 2018 to €81.4m in 2019.
This was achieved through the resumption of production at the end of 2018, the recovery of delayed orders at the beginning of 2019, and returning customer confidence over the course of the year. Production capacity has also been increased during the turnaround, which will allow the company to grow revenues in the future.
Orders backlog has returned and surpassed historic highs, and there has been a return to positive cashflow from operations. Outstanding debt to banks and factoring institutions reduced from €43.6m before the turnaround, to €19.5m by the end of 2019.
Improved health and safety procedures have also been implemented, and labor relations have improved.
