SCG_distressed

Convenience USA, Inc.
This 250-unit chain of convenience stores located in four southeastern states was
generating approximately $300 million in annual sales when it became impossible to
continue servicing its $115 million of secured and securitized debt. The company had
been cobbled together by a pair of former investment bankers in a series of 14 debt-
financed acquisitions over a three-year period. Spectrum was engaged to assist the
company with all strategic and financial aspects of its reorganization. On Spectrum’s
advice the Company filed for Chapter 11.

Management and the company’s secured creditors were soon at loggerheads over the
future of the company. Management, who owned all of the company’s equity, believed that
a reorganization and emergence from Chapter 11, even if it took two or three years, would
result in the best recovery for all constituents. The secured creditors wanted to monetize
their collateral immediately and take no operating risk. Spectrum was asked to structure
a deal that met the needs of both management and the secured lenders. This was
quickly accomplished with management accepting a severance deal.

Spectrum was then asked to run an M&A process on behalf of all parties. The company’s
stores were organized into ten separate groups and prepared for sale. Invitations to Bid
were sent to over 400 potential industry and financial buyers. Two rounds of bidding were
conducted, in which Spectrum was able to maximize sale proceeds by optimizing bids
from all-or-none bidders with those just bidding for a single or two groups of stores.

McBride and Associates
When this Virginia-based value-added reseller of computer hardware and software
called in Spectrum, the company, which generated about $150 million in annual sales,
had just suffered through a “perfect storm” of exogenous events in its markets. These
events left the company in default with its secured lender and unable to keep up with its
obligations to the trade. The company’s secured lender had cut-off the company’s
access to its credit line, thereby making it impossible for the company to pay its trade
creditors. The company’s CEO and owner strongly believed that Chapter 11 was not an
option because the company’s customer base would quickly turn to more stable
competitors.

Spectrum’s first task was to stabilize the situation. Spectrum was able to do this quickly
by negotiating a reinstatement of the secured line. With this accomplished, the company’
s trade resumed shipments. However, the company remained vulnerable because it
could not become current with the trade in the short term. To resolve this problem,
Spectrum organized a representative group of trade creditors into an unofficial committee
of unsecured creditors and negotiated with them repayment terms in the form of new
promissory notes to be issued by the company. As a condition of agreeing to the
restructuring, the company required an overwhelming majority of the trade to accept the
deal. This was accomplished.

Prism Enterprises, Inc.
Spectrum’s client in this transaction was Huron Capital Partners, a Michigan-based
private equity group that had negotiated the acquisition of a Texas-based medical
instrument manufacturer from its parent company. The parent company was operating
under Chapter 11 in New York. The transaction had been structured under Section 363 of
the Bankruptcy Code, so that although Spectrum’s client had a fully documented deal, the
debtor’s ability to go forward with the sale of its subsidiary was subject to there being no
higher and better offers presented at the Bankruptcy Court hearing to approve the deal.

At the hearing, two public companies appeared and expressed interest in making higher
and better bids. Both companies stated that they required additional time to perform due
diligence before presenting their bids. Over Spectrum’s client’s objections, the judge
extended the auction by more than a month. Spectrum was engaged at this time to help
our client revise its bid in light of the new competition, and to protect the equity group’s
substantial investment of time and money in its acquisition effort.

As Spectrum analyzed the situation, it became clear that both potential bidders presented
real threats to the stalking horse bid made by Spectrum’s client. Being well-established
industry participants who believed the target offered strategic advantages, either bidder
could easily have afforded to outbid Spectrum’s client. Spectrum advised its client not to
increase its bid and instead to focus on how much more certain a closing with them was
than with either of the two new bidders. Having determined whom within the bankruptcy
proceedings the sale of this medical instrument subsidiary was most important to,
Spectrum devised a communications program that compared Spectrum’s client to one
bidder from an antitrust perspective, and to the second bidder from a conflict of interest
point of view. These comparisons showed that there was no certainty that either potential
bidder could close the acquisition in the near term. Neither potential bidder actually
presented a bid and Spectrum’s client closed the transaction without an increase in its
bid price.

Furr's Grocery Stores
After obtaining D.I.P. financing shortly after filing for Chapter 11, this billion-dollar grocery
chain found itself unable to generate positive cash flow, forcing it to commence a fire sale
liquidation of its stores. Spectrum was engaged by a prospective buyer and assisted its
client in purchasing two stores located in Texas.

Anonymous Multi-Unit Retailer
This Rocky Mountains-based $200 million convenience store chain engaged Spectrum
to assist it in working with three separate institutional creditors (Morgan Stanley, GMAC
and GE Franchise Finance) in restructuring $53 million of secured and securitized debt.
Spectrum helped its client declare a moratorium on all debt service and then engaged its
client’s secured creditors, together and separately, in this successful out-of-court
restructuring.


	Distressed




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