TMA Chicago/Midwest Chapter Award Program
Large Turnaround of the Year
While it might seem unlikely for a company that possessed a 9:1 total leverage ratio a year earlier to be refinanced at full par value, that is exactly what The Keystone Group, Management, Mid Oaks (equity sponsor), Wells Fargo (lead outgoing lender/new lender), and Greenberg Traurig (company counsel) were able to accomplish for D&W Fine Pack. Without demonstrating a substantial operational and financial turnaround, which has seen EBITDA improve by 2.6x through August of 2015 vs. last year, it is almost certain that this refinance could not have happened.
In the fall of 2013, The Keystone Group was engaged at D&W Fine Pack to support management in its turnaround effort. D&W experienced consistent erosion of margins and earnings, and was having difficulty servicing its debt. The turnaround involved operational improvements, a refinancing effort, and the creation of a culture of accountability throughout the organization. The analysis, planning, and execution of the improvement initiatives by management and Keystone elevated the company’s performance to its highest level as a combined entity.
The first priority was to stabilize the company’s cash position and work with the bank group to provide enough runway for the improvements to take hold. Shortly after the engagement began, it became apparent that the company would violate its fixed charge coverage covenant, among others, as of the end of 2013. In January of 2014, each lender moved the credit to workout. In February of 2014, after the company had formally defaulted, the revolver was frozen. In March of 2014, Keystone and the company negotiated the first of two waiver agreements which would ultimately expire January 15, 2015. These interim waivers provided the company with the cash stability necessary to implement operational improvements.
After stabilizing the financing arrangements, the team focused on a few key initiatives to improve profitability. Those initiatives were projected to result in run-rate improvements greater than the prior year’s EBITDA. The most impactful initiatives included: product/customer rationalization, manufacturing footprint rationalization, and material cost improvement. Each of the improvement initiatives was assigned to a cross-functional team within the company, with a Keystone consultant driving analysis and supporting implementation. As a result of this emphasis on detail and accountability, the company surpassed its targeted savings in 2014.
However, despite the turnaround, the differing views of the existing lenders indicated that the waiver agreement would not be extended past the January 15 deadline. To accomplish a refinance within the abbreviated timeframe, Keystone and the company maintained close communication and cooperation with Wells Fargo and, with assistance from Greenberg Traurig, ensured that no covenants were violated during the waiver period. The company was successfully refinanced through an asset-based loan structure (ABL) with Wells Fargo, which allowed each of the senior debt holders to be paid back in full. The execution of this transaction was supported by Wells’ confidence in the validity of the operational improvements achieved in 2014, as well as a projected 2015 EBITDA, which was double that of the previous year. Through August, that confidence has proven to be merited as D&W is operating at 96 percent of an aggressive EBITDA budget.
Small Company Turnaround of the Year
Cochise Regional Hospital (CRH) was previously known as Southeast Arizona Medical Center (SAMC). Prior to the involvement of People’s Choice Hospital (PCH), Goldstein & McClintock LLLP (G&M), and SAK Management Services, LLC (SAK), SAMC was facing imminent closure. PCH, a hospital management company, with the assistance of G&M and SAK, took over operations of the hospital in February 2014 and has implemented wholesale changes that enabled the hospital to serve the community of Douglas, AZ.
G&M discovered that the hospital was about to close and introduced the opportunity to PCH. PCH hired SAK to conduct the initial financial due diligence. The SAK and the PCH teams discovered the monumental issues facing the hospital. Revenues were declining due to the lack of in-patient revenues; the hospital was overstaffed and operated very inefficiently, with cost overruns in every department.
The PCH team quickly determined that the Hospital would need to make changes to every aspect of its operations in order to remain open. PCH, with the assistance of G&M team, purchased the secured debt of the hospital’s pre-bankruptcy secured lender at a substantial discount and then “credit bid” that debt to purchase the hospital at the end of January, 2014. PCH renamed the hospital and took over management of the hospital pursuant to a management contract. The result was a relatively “debt free” hospital that enabled PCH to start rebuilding the hospital without the burden of past due trade debt.
Since February 2014, the PCH team utilized a proprietary strategy whereby three critical aspects of hospital operations were optimized beginning on day one after completing the acquisition. Phase one was to immediately focus on increasing clinical revenue. This was comprised of increasing hospital admissions, reducing unnecessary transfers, increasing diagnostic tests, and increasing clinical procedures. While this first step may appear easily replicated by competing turnaround teams, it was contingent upon PCH’s unique access to physician specialists and its telemedicine network. Telemedicine enables residents in rural hospitals to have access to credentialed doctors without having to drive hundreds of miles. Through a Skype type program, doctors can examine patients and make a diagnosis remotely (with the assistance of local nurse or physician assistant). Doctors then travel to the hospital once or twice a month and perform numerous procedures “back to back.” This is a tremendous cost savings for the hospital as it does not have to pay to have a doctor available 24 hours and provides local residents’ access to doctors in their home area. This aspect of turnaround efforts directly promotes increased admission, tests and procedures.
Phase two is to completely overhaul hospital operations by following up on SAK’s recommendations and realigning resource allocation, renegotiating vendor agreements, leveraging all government incentive programs, and optimizing coding & billing workflow. Coding and billing refers to the process by which a hospital prepares invoices for third party payors such as insurance companies, Medicare and Medicaid.
In less than 16 months, the PCH turnaround effort at CRH has shown what technology driven community healthcare can achieve. In-patient overnight admissions have almost quadrupled, from 4 per week when PCH purchased CRH to 15 per week today, monthly revenue as improved from a low of $638,000 in May, 2014 to $1.831 million in March, 2015 and improved financial performance to break even after years of losing over $1.0 million per year.
Small Transaction of the Year
LongVANS, Inc. (Company) was a privately-held lessor of portable space solutions for commercial, industrial, and retail customers across the Midwest. The Company specialized in leasing storage containers and office trailers. The Wisconsin-based company, at its peak, leased more than 1,500 rental units to more than 800 customers in Wisconsin, Minnesota, Iowa, Michigan and Illinois.
The Company had demonstrated a growth trajectory since its founding, but both the capital structure and the cost of capital prevented the Company from growing further or even servicing its existing debt. It grew too fast, too soon. Typically, the Company raised capital by enlisting one or more investors who invested $200,000 in cash into a newly formed, single-purpose LLC. The Company was the sole member of each new LLC. The new LLC would then use that $200,000 in capital to obtain a loan from a traditional lender for $800,000. The $1 million was then used to buy another pool of assets (usually storage containers and office trailers). Despite the assets’ 20-year useful life, the standard loan term was five years. This enticed investors with near-term potential returns. The LLCs would lease the new assets to the Company, which would then rent them to customers. In all, 14 related LLCs were indebted to more than 10 different secured parties. The founder and principal of the Company was the managing member of every LLC, and he had effective management control over all of the entities, without a controlling ownership interest.
To reach a successful closing, it took all of the nominees’ talents and experience (and a little luck in the market) —outside of a bankruptcy proceeding—to: (a) vet, and in many instances, recreate the Company’s current and historical financial statements to create accurate projections for the sale period, and to provide legitimate historical statements for due diligence; (b) identify the assets owned by the Company and the 14 related LLCs to determine which members or shareholders, and which secured lenders, would receive the sale proceeds; (c) garner the necessary stakeholder support from: 10 different lenders and other competing secured parties, who had not received P&I payments in months and would not be paid during the 6-month sale process, all without any inter-creditor agreements and in the face of multiple pending lawsuits, trade creditors, some holding eight different judgments, garnishment actions, and 14 pending lawsuits; key employees, after developing and funding retention packages; and to Investors; (d) negotiate an agreement with the real estate lender for the Company’s base location, owned by yet another LLC, involving another secured creditor, despite the mortgage lender filing a foreclosure action shortly after our engagement, and despite the entry of a judgment of foreclosure several months before the sale closed; (e) operate the business on a breakeven basis during the sale process, while neither paying down or further extending the trade creditors.
Secured lenders voiced concerns over their risk when we were engaged. By preserving the value of the operating business and running a competitive bid process that closed 63 percent higher than the initial bid, all secured claims were paid in full at closing. After the release of various holdbacks, all trade creditors will be paid in full and investors will receive some return.
Emerging Leader Award: Michael Brandess
Michael Brandess has served as a shining example for what many young leaders should strive to accomplish as a member of the TMA. From day one, he has demonstrated great leadership. Not only does he serve as an example of a great leader in the chapter, he is always very welcoming to other new young professionals who want to get engaged.
As colleague and friend, Angela Allen (Jenner & Block) stated, “When I was just starting out in the chapter, Michael took the time to introduce himself and always made me feel welcome and included at events, introducing me around to people who ultimately became great friends.”
Michael’s efforts and exemplary leadership have been key in his success as a volunteer leader and this year he has stepped up his active role in the organization even more serving as a co-chair of the award-winning Breakfast Committee. Great things lie ahead for Brandess and the chapter is honored to recognize him as one of its Emerging Leaders for 2015.
Emerging Leader Award: Kathleen Parker
Kat Parker joined the TMA with both feet and has kept on running since. In her three years of leadership as a co-chair of the NextGen Committee, Kat has demonstrated great strength, growth, organization and energy. She has been instrumental in planning anywhere from four to six events a year including informative lunches, networking cocktail receptions, and the inaugural marquee event at The House of Blues. All of which are no small feat. Every event the committee hosted under her leadership was a success and packed with NextGenner’s eager to network and learn more about the TMA.
In addition to her tremendous work within the chapter, Kat has also served as an ambassador of the chapter on a global level. She has attended the NextGen Global Conference for three years running, and this year brought several Chicago chapter NextGen members along with her to the conference. She currently serves as co-chair of the NextGen Global Committee and next year will take the reigns as chair of the NextGen Global Committee, a role in which we should all be proud. Kat continues to greatly elevate the status of our chapter’s NextGen platform on both the local and global scale and for that we are pleased to recognize her as one of our very special Emerging Leaders.
Outstanding Service Award: Bill Farrar
Bill Farrar is “that guy”—always there to welcome you at any TMA event with a smile and always willing to help –particularly for the TMA Milwaukee Committee. For the past six years, Bill has been instrumental in taking the Milwaukee programs and events to the next level. Aside from his vision and tenacity to get things done, Bill literally attends every meeting/event, shares his energy with the group and always makes a great speech at every one of the Milwaukee programs. Bill is a doer. From the start of every event setting up the sponsorship signs, taking all the pictures during the event and when it is all over he is the first to raise his hand and write an article about the event. Even better, Bill makes getting involved fun. He engages members to step up and get involved throughout the year. But at the end of this year, Bill is stepping down allowing for future leaders to follow his lead. Thank you, Bill for your dedication and commitment to the Milwaukee Programs Committee. You will be greatly missed but we know you continue to have a presence.
Outstanding Service Award: Joe Fobbe
A member since 1999, Joe Fobbe has “been there and done that” when it comes to his involvement in the TMA. Even after serving as Chapter President in 2009, Joe has been actively engaged and always leaving his mark. In 2015, Joe served as a co-chair of the Breakfast Committee and once again, he delivered. As TMA member, Michael Brandess stated, “As Joe’s co-chair on the breakfast committee, I have had the privilege of working alongside Joe in his tireless efforts to increase the value of the breakfast program from previous years—with a desire to drive attendance and promote the organization through providing valuable content. In particular, Joe was instrumental in bringing in not only our first speakers, who discussed the MB Financial/Cole Taylor merger, but more importantly, Governor Rauner. From his first e-mail to the Governor’s office, Joe worked tirelessly with both the Governor’s staff as well as various members of the TMA to ensure that the program was a success. With almost four hundred attendees registered, the governor’s breakfast was the largest and most successful in our organization to date. Moreover, the governor’s breakfast resulted in several non-members joining the TMA, further increasing our footprint in the turnaround market.”
Joe’s commitment to the TMA extends beyond driving attendance to our events. As a long standing member of the organization, Joe has served as a role model to his fellow co-chairs, who are all current or recent members of NextGen. He has taken us under his wing and proven to be both a strong leader and an even stronger teammate.
Outstanding Service Award: 2015 Breakfast Committee
When Chapter President, Aaron Hammer took office at the December 2014 Board meeting, he sent a strong message and continued to send that message throughout his term. Simply, he asked everyone to “Be ambitious”—to go outside their respective comfort zones and to accomplish one’s most far reaching professional goals (personally and within the TMA as a volunteer leader). The 2015 Breakfast Committee took heed to Hammer’s mission and immediately kicked off a series of programs that resulted in one of the most highly attended breakfast forums in the first half of the program year.
On a very cold morning in January, more than 240 registered guests were treated to a discussion about the recent merger between MB Financial Bank and Cole Taylor Bank. Soon enough, March rolled in like a lion and nearly 325 people came to hear a program on “Modern Business Ethics: Are We Doomed to Repeat the Past?” featuring former Enron CFO, Andy Fastow. Barely 60 days later, more than 400 TMA members and guests were enlightened with a VIP appearance by Governor Bruce Rauner who discussed the “Illinois Turnaround.” In addition to the robust program line-up, the committee also implemented a new summer networking breakfast that 130 attendees enjoyed outside overlooking the Chicago River along with friends and colleagues from the Commercial Finance Association.
In short, the 2015 Breakfast Committee was extremely ambitious and as a result attendance at the various programs was at an all-time, record-setting high. Congratulations to the entire team!
CTP Award: Tom Harig
Our 2015 winner of the CTP of the Year award is Tom Harig, CTP, a Director with The Keystone Group, focusing on the restructuring and operations consulting practice areas. Tom has earned this award by being the most prominent CTP or CTA in the Chicago Midwest Chapter in 2015 by winning the large company Turnaround of the Year award. Leading his team’s efforts in this turnaround, Tom has demonstrated with the team’s success that the TMA’s CTP or CTA designation is associated with the best turnarounds performed each year.
Tom has worked in turnaround and profit improvement projects across a broad range of manufacturing and distribution companies. Prior to joining Keystone, he was a partner in Andersen Consulting’s Strategic Services practice, leading the unit’s business reengineering efforts. Tom holds a Bachelor of Science in Electrical Engineering from the University of Notre Dame and a Master of Science in Industrial Administration from Purdue University.
Tom is also a past winner of the TMA National Turnaround of the Year award and two-time TMA Chicago/Midwest Chapter Turnaround of the Year.
Legend Award: Melanie Cohen
Melanie Cohen was a trailblazer not only for the TMA but in the bankruptcy industry as a whole, rising to prominence at a time when there were few women in the industry. Melanie was one of the founders of the TMA and the second president of the Chicago chapter. In addition, she was President and Chairman of TMA Global. She was responsible for introducing the first certification program (including teaching the law review session for the CTP exam for many years), implementing TMA’s education arm, and introduced Fallen Angels, the predecessor to today’s Pro Bono program. While numerous organizations offer pro bono programs today, at the time it was considered innovative for turnaround professionals to come together to help businesses in need. Lastly, Melanie led the TMA’s efforts to expand internationally, overseeing its first chapter outside of the United States, which led to what TMA Global is today—a worldwide organization.
Melanie started as a law clerk for Judge Fred Hertz and spent the majority of her career at Altheimer & Gray, where she led the bankruptcy group for many years and was involved in many prominent bankruptcy cases. After leaving A&G, she was a partner at Quarles & Brady, LLP in its Chicago office where her areas of interest and practice were commercial and corporate law, including secured transactions, bankruptcy and reorganization.
Melanie is a board member of Republic Financial Corporation. At the firm, she is a member of the Special Assets Advisory Board. Currently, she is a senior mediator in alternative dispute resolution. Melanie is a panelist and a regular speaker for many organizations including the American, Illinois State and Chicago Bar Associations, Illinois Institute for Continuing Legal Education, National Counsel of Bankruptcy Judges, and the Commercial Law League of America. She has authored numerous articles on various aspects of bankruptcy and lending law. She has been an instructor at DePaul University College of Law and The John Marshall Law School, teaching secured transactions, real estate, and debtor-creditor law courses. She has been recognized as a Leading Lawyer and an Illinois Super Lawyer, a Fellow of Brandeis University and a Fellow of the American College of Bankruptcy. She graduated magna cum laude from the DePaul University College of Law, and received her Artium Baccalaureatus cum laude, with honors in Economics from Brandeis University.
Melanie was also a great mentor not only for bankruptcy lawyers within her firm and turnaround professionals in general but for women specifically. Melanie’s dedication to the TMA and its members since its first days, along with her professional accomplishments, truly make her a legend of the TMA.
There is no more deserving person in the industry to receive this inaugural award.
You can still sign up for the #TMA Golf Scramble at #TMADIC. Golfers will enjoy friendly competition and continued… https://t.co/tk7Ys74BoI
We're accepting entries for the #Turnaround and #Transaction of the Year Awards, the most prestigious awards in the… https://t.co/daQvLOdB5k
The TMA Distressed Investing Conference is the premier meeting place for corporate restructuring and distressed inv… https://t.co/K0UdW8aABo
Scott Stuart, @TMA_CEO, was quoted in "Bloomingdale’s is a strong brand: How the department store has dodged the fa… https://t.co/eKwa11ZHgE