Steve Tomasello, EVP/East Division President, Crestmark Bank
Steve Tomasello, EVP/East Division President, Crestmark Bank

Alternative lender Crestmark Bank is often asked by traditional lenders, turnaround professionals and consultants to develop unique funding solutions for businesses. Every once and awhile, a unique and challenging opportunity will arise that requires far greater creativity to develop a successful loan structure. In addition, sometimes the structures require numerous elements that need to happen in a very specific order to create the opportunity to benefit the business at hand.

In late 2014, Crestmark Bank became aware of a busy and profitable plastic thermoforming company who found themselves in need of a new financing solution. The company had a long-standing relationship with a local traditional community bank that provided and held the company’s numerous loans. The community bank had been recently acquired by a major national bank, and after the acquisition, the new banking entity felt that the relationship was no longer a good fit due to the relationship size and tax liens associated with a portion of the company ownership’s assets. The existing relationship was transferred to the new bank’s special asset unit, and a turnaround specialist was brought in to find a new home for the relationship.

Seeking a New Solution

With $8-10 million in annual sales, the respected 40+ year old thermoforming company had been well guided under its leadership for more than 20 years, and had grown over the past 15 years through a series of acquisitions. The company was skilled at providing a full array of capabilities ranging from small-run products to high-volume plastic products for diverse industries. These industries included aerospace, music/entertainment, food packaging and the automotive industries.

The company also had the capability to take a project from a concept to a finished part using a variety of materials including: high impact polystyrene, PET/RPET, PVC, ABS, polycarbonate, acrylic and fire retardants. In addition to the many types of material offered, the company offered secondary operations that included CNC machining and CNC routing, die cutting, assembly, decorating (hot die stamping, pad printing), gluing, adhesive bonding and packaging to offer a comprehensive solution throughout each stage of the project. A critical point for management was to always ensure a close proximity to their customer base, which facilitated close collaboration, consultation and timely solutions. Therefore, the company maintained three locations in three states, with combined production facilities that totaled more than 80,000 square feet.

Examining the Finances

One of the more interesting and beneficial aspects of this situation was the fact that the loans were not considered distressed. The company was profitable with strong financial ratios, and all of the future projections demonstrated that the company expected these trends to continue and improve. A new contract was being negotiated on a major piece of new long-term production with a strong company that would significantly bolster future financial performance.

Based on the competitive state of the commercial loan market and plethora of money available to meet borrower’s demand, all the signs pointed toward a deal that would attract immediate interest, and lead the company to quickly enter a new lending relationship while exiting the incumbent bank.

The turnaround specialist assigned by the bank’s special asset unit reached out to several lenders. However, instead of promptly locating and securing a new deal for the prospect, he was disappointed to receive turndown after turndown. Lenders seemed to feel that the deal was either too small or far too complex to justify the effort it would take to create a financial solution. In addition, the numerous existing loans from previous acquisitions, the tax liens and the potential difficulty of leveraging assets located in three different states caused other lenders to take a pass.

Undeterred, the turnaround specialist heard of another potential source for financing, and reached out to Crestmark. When meeting with the prospect, instead of responding with reasons why Crestmark could not or should not do the transaction, our representative listened, asked questions and looked for ways to help. Crestmark grasped that the prospect was a strong company with solid leadership — a company worth the time it would take to get to the next steps. After pulling together the pertinent information and running it by key Crestmark management, the company received a preliminary nod to move forward. Soon thereafter, a Crestmark team began working on the diverse elements of this unique opportunity.

A Multi-Tiered Solution

After looking at the whole of the entity, and working with the owner, Crestmark realized that a lot had to be accomplished. Twelve loans had to be refinanced, consisting of personal loans, mortgages, a line of credit and machinery and equipment term loans. Based on the prospect’s strong motivation to refinance, solid financial performance, and collateral, Crestmark’s senior management team took the situation into consideration. The management team recognized the complexity of the proposed structure, but liked the odds of being able to help provide the complex lineup of solutions needed. Shortly thereafter, Crestmark delivered a proposal to the prospect that addressed both the company’s and the incumbent bank’s needs.

Crestmark’s senior underwriter worked as a key member of the team to develop a creative and timely proposal made up of a working capital line of credit, a machinery and equipment term loan and an SBA 7(a) loan. Crestmark realized that — due to the tax issue — the SBA transaction would have to close after the other loans closed, and a portion of those proceeds would be used to eliminate the tax liability. An agreement was reached with the incumbent lender that allowed for the assets supporting the line of credit and the machinery and equipment loan to be financed. The company would be provided with a $1,750,000 line of credit, and a machinery and equipment loan of $750,000 on thermoformers, CNC machine tools and other equipment.

As a busy and growing business, the company’s growth by acquisition in three locations provided some opportunities for enhancement. Throughout the loan negotiation process, the company showed an interest in Crestmark’s ideas related to streamlining operations and processes, and they worked closely with Crestmark, their company’s counsel and accountant to implement changes that would enhance efficiency. The team saw opportunities to create cohesive processes for operations in all three states, and reduced confusion related to the diverse state regulations and registrations. Three separate accounting systems were eliminated, and one system serving operations in all three states was prepared and rolled out. The new accounting system represented savings in several areas, including improved management of controls, consistent processes, and higher-quality financial reporting. The company was also able to increase internal checks and balances in documentation for delivery of their many products. These innovations will only further enhance the company’s future strength and potential.

What Made the Difference

With any transaction, items come up that can help or hinder the forward progress of taking a new prospect through to the funding stage. Several factors were essential for success in this unique opportunity: a solid company with great products and strong leadership, a resourceful turnaround professional who didn’t give up on finding an interested lender, and a solid relationship with the incumbent lender. It was a great benefit that the incumbent lender proved to be accommodating and easy to work with, and though they were not able to continue the relationship, they were committed to finding the manufacturer a good home. Of course, it was imperative to have a solid portfolio of lending options that could work well and in conjunction with each other. Another bonus was having the resourceful and motivated sales, underwriting and management team at Crestmark who wanted to create a solution, and who diligently worked together to make it happen.

The financing for the first portion of the thermoforming company’s solution, the line of credit and term loan, were finalized and provided in late March 2015. The proceeds from that initial funding were used to retire a portion of the bank debt and tax liens. The second wave, the SBA loan, was closed on schedule at the end of May 2015.

This type of funding opportunity that can help a worthy client is rewarding. The process was a challenge and provided an interesting and educational journey, and best of all it finished on a good note for everyone. In the end, Crestmark was happy to help a thriving and growing business, and the business was happy to move on and prepare for its new chapter.