When Real Trouble Hits How To Speak To Your Bank

1. CalCPA
When Real Trouble Hits
How To Speak To Your Bank
California Society of CPA’s LA B&I
October 19, 2011

2. Agenda When Real Trouble Hits - How To Speak To Your Bank
Background of Jonathan Wernick and Kibel Green
Stakeholders
Current Pulse of the Banking Environment
Signs of Trouble
What Banks Want to See
Tools
Asks
Consideration of a Third Party
Q&A
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3. Biography – Jonathan J. Wernick
Jonathan J. Wernick Professional Experience:
Managing Consultant
Kibel Green Inc.
Jonathan Wernick is a Managing Consultant with the Turnaround Practice at Kibel Green. He brings
nearly 20 years of audit, finance and accounting experience to Kibel Green
Contact Information:
Phone: 310-829-0255 x205 Mr. Wernick has assisted clients with forensic investigations, creditor negotiations, sale of assets, loss
Fax: 323-843-9385 mitigation, litigation support, solvency analysis, financial restructuring, strategic and business plan
development, capital sourcing, and operational improvement
E-mail Address: Prior to joining Kibel Green, Mr. Wernick served as an interim CFO/Controller for public and private
jwernick@kginc.com companies. Jonathan has also held management roles at Trader Joes Company, Softline Software &
Patina Restaurant Group
Office Address:
2001 Wilshire Blvd., Prior to working in the private sector, Jonathan was a CPA with KPMG LLP where he focused on
Suite 420 middle market companies in the real estate, manufacturing, healthcare and retail sectors
Santa Monica, CA 90403
Mr. Wernick is an active participant in many professional associations including the California Society
of CPA’s Members in Industry, Association of Certified Fraud Examiners, Association for Capital
Growth,
Growth Turnaround Management Association American Bankruptcy Institute and Provisors
Association,
Giving back to the community is important to Mr. Wernick. He sits on the board of the Downs
Syndrome Association of Los Angeles and the Etta Israel Center. In addition, he has been a mentor
to USC students and a sponsor of field projects so students could acquire real world business
experience
Education & Certifications:
MBA – University of Southern California
B.S. – Yeshiva University
Certified Public Accountant State of California – Active License
Certificate in Culinary A t
C tifi t i C li Arts

4. Kibel Green Inc. - Firm Overview
We offer three synergistic capabilities for middle market companies
Over 1,500 clients since 1984 Primary focus on public and
$5B in transactions private middle market companies
Turnaround Operations
Lender negotiation Profitability improvement
Cash flow maximization Organization simplification
Business plan vetting Supply chain efficiency
Cost management Project management
CRO services
A one-stop solution
Broad experience
Financial Strong partnership with
management
Retail Restructuring
Senior-level professionals
Manufacturing Debt negotiations
Distribution New funding sources Resources and expertise
Service Bankruptcy plans for urgent situations
Real Estate Sale of assets
A regional presence in
Technology the Western U.S.
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5. More Simply
Kibel Green is a financial advisor that connects the dots for all stakeholders
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6. Stakeholders
Vendors
V d
Customers
Ownership
Employees
Financial Institution
Professional Advisors
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7. Current Pulse of Banking Environment
Quarterly profit for Wells Fargo and Citibank close to $4 billion
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8. Current Pulse of Banking Environment
Despite profitability the banks are holding on
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9. Current Pulse of Banking Environment
Per Marketplace this past Monday
Coronado: Well if you look through the details, the results are just OK. Banks are actually having a
tougher time making money and growing revenue. So unfortunately, I think that what it means is
credit standards are probably going to stay pretty tight for a while -- it doesn't look like it's going to
ease up anytime soon.
Hobson: But when people hear about $3, $4 billion profits, and they know that these banks are
p p $ ,$ p , y
sitting on a lot of cash; they've got access to cheap money from the Fed, they're going to say,
"Why aren't they lending?"
Coronado: So we have a bit of a chicken and egg situation. After the financial crisis, we want to
move to a world with smaller banks, with more tightly-regulated banks. So that means banks have
to set aside more of their earnings to shore up their capital position so that they're safer.
And what that means is that there's going to be less of that money available for lending. And of
course b k know they're under tighter scrutiny about the kinds of loans that they make. So in the
banks k th ' d ti ht ti b t th ki d f l th t th k S i th
process of moving to a world of tighter regulation -- that by definition means less free money
around.
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10. Current Pulse of Banking Environment
Per Marketplace this past Monday
Big b k are also being hurt by the problems in Europe. So to get the true sense of how America is
i banks l b i h b h bl i S h fh i i
doing, look at the little banks. Here's Fred Cannon at Keefe Bruyette & Woods.
Fred Cannon: There's a lot of regional banks -- small community banks -- that are doing OK.
The reason: Those banks are lending more money to local businesses and don't depend on volatile
markets.
markets
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11. Signs of Trouble
Broken Covenants
Declining Missed
Cash Flow Projections
Diminishing Vendor
Relationships
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12. More Signs of Trouble
Potential Distress Signals Checklist
Breaches of key performance covenants (i.e., Late filing of financial statements/other
minimum EBITDA, maximum leverage or
EBITDA information
i f ti
interest coverage, minimum FCCR)
Tightening of availability/taking more reserves
Failure to meet business plan
Vendors tightening terms
Significant declines in cash flow
Significant litigation
Increases in days payables
Capital infusion by owner
Piecemeal asset sales
Large write-downs
Loss of key customer or vendor
Transfer to special assets division
Layoffs
Sales of debt obligations to other parties
High turnover at officer level
Death/incapacity of owner
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13. What do Bankers Want to See
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14. What do Bankers Want to See
CLARITY
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15. What do Bankers Want to See
No Surprises “They are for birthdays”
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16. What do Bankers Want to See
Full Disclosure
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17. What do Bankers Want to See
Solutions / Not just Citing a Problem AKA “A Plan”
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18. What do Bankers Want to See
Skin in the Game
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19. What are the Tools ?
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20. What are the Tools ?
a. 13 week cash flow Yes
b. Current Balance Sheet, Income Statement and cash flow Usually required Quarterly and
statements outside of quarterly reporting are subject to adjustments defeating the
purpose, but willingness/ability to provide statements quickly suggests the owner is
actually looking at their financials to make adjustments to operations from a borrower
actually looking at their financials to make adjustments to operations from a borrower
that is losing interest/ignorant/etc. In the same respect, a business owner that
understands their financials and can discuss with the banker distinguishes them and
goes a long way in likelihood of working together instead of arguing.
c. Quarterly cash flow If not a quarterly requirement, beneficial but cash flow and debt
service ability usually performed by banker.
d. 12 month projection with debt and covenant coverage Projections are important, bank
usually likes to determine ability to cover covenant requirements. When the borrower
usually likes to determine ability to cover covenant requirements. When the borrower
tells the bank they will meet covenants in projections, it looks more like the projections
have been established around ensuring the covenant requirement is met.
e. AR/ AP / INV aging with explanation of items over 60 days Yes, explanations are
important.
i t t
f. Executive summary on the key business issues and plans on how to improve Anyone can
say how things will get better, I could tell you the housing market will reach 2005 levels
in the next year. Identifying ways the company has made improvements over the last 3‐
6 months would be more beneficial.
g. Listing of expense reductions Again, showing the benefit of expense reductions already
made would be better. 20

21. Asks
What should you be asking for ?
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22. Asks
Over advance
Time
Interest Only
Forbearance
Additional Collateral
Be prepared to pay higher interest in exchange for the asks.
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23. Client Profile – Sample of Recent Engagements
We have broad industry experience and strong expertise in distressed situations
Function Size Description Service Provided
Manufacturer $75M Consumer Products Operations
Manufacturer $310M Consumer Products Operations, Financial Restructuring
Manufacturer $1.0B Technology Operations
Manufacturer $300M Automotive Turnaround, Financial Restructuring
Manufacturer $1.1B Sports Equipment Operations
Distributor $90M Food Turnaround, Operations
Distributor $65M Consumer Products Turnaround
Distributor $80M Automotive Turnaround
Retailer $85M Home Furnishings Turnaround, Operations
Retailer $
$135M Consumer Products Operations
p
Publisher $330M Media Turnaround, Financial Restructuring
Services $10M Entertainment Turnaround, Financial Restructuring
Services $56M Staffing Turnaround, Operations, Financial Restructuring
Services $41M Logistics Turnaround
Services $100M Hospital Turnaround
Real Estate 1 $115M Residential Turnaround
Real Estate 1 $400M Residential Turnaround
Real E t t
R l Estate 1 $175M
$ Commercial
C l Turnaround
d
1) Size measured by annual revenue except for real estate which represents asset value
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24. Service Offerings - Turnaround
Our turnaround service offering concentrates on four key activities to address visibility, cost
and business model issues
Developing a
Projecting and Reducing Costs – Improving
Plan – Current
Managing Cash Lowering Break Management
State vs. Future
Flow Even Reporting
State
Develop a rolling 13- Renegotiate real estate Develop a detailed Create weekly
week plan and personal property current state income information package
leases statement
Tie projections to Develop company
balance sheet Evaluate facility Build a target future dashboard / key driver
consolidation state – profitable report
Create goals and business model
assign responsibility Reduce payroll Improve
expense Identify actions communication among
Identify potential
yp necessary to lenders,
lenders equity and
sources of cash Reengineer processes
implement plan management
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25. Service Offerings – Financial Restructuring
Integrates diverse skill-set to offer powerful Financial Restructuring p
g p g platform
Deep understanding of the restructuring process (in and out of Chapter 11).
Restructuring Long-standing presence in the distressed environment and reputation for
Expertise knowing the players and sources of capital.
Forge constructive deals
deals.
Combination of Financial Restructuring, Turnaround and Operations under
one roof provides a differentiated platform.
Powerful Platform Can develop capital structure solutions, provide credible reporting and
implement value enhancing operational improvements
value-enhancing improvements.
Able to vet Plans of Reorganization and formulate alternative Plans.
Client Advocate Will fight on behalf of client constituency to ensure they are not taken
advantage of.
of
As a smaller firm, better able to prevent market knowledge of a transaction.
Confidentiality Preserve confidentiality where creditor wants to stay unrestricted (i.e., not
receive non-public information) and needs party to review that information
information), information.
Provide objective 3rd party perspective on a Company’s situation and recovery
Objectivity prospects for constituencies.
Honest broker that can manage intra-creditor differences.
g
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26. Service Offerings – Financial Restructuring
Representing Creditors and Debtors in various types of Financial Restructurings
Restructuring Balance Sheets Renegotiating Debt Covenants/Terms
$645M meat processor and sandwich maker $140M mobile phone distributor
$250M contract manufacturer of field rations for $200M chain of regional casinos
the military
$96M global provider of telecommunications
$366M natural gas plants in the Northeast services
$150M chain of furniture stores $350M chain of electronics and furniture stores
Raising Capital Selling Distressed Assets/Companies
$350M manufacturer and distributor of medical $100M Group of wineries in Northern California
consumables for the elderly
$114M Jeweler targeting low-middle income
$126M manufacturer and distributor of dairy Hispanic market
products
$200M retailer of denim and casual clothing for
$75M chain of Mexican restaurants teens
$100M integrated media publishing company $125M manufacturer of consumer and
(trade magazines, journals, conferences) commercial cooking equipment
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27. Service Offerings – Financial Restructuring
When to contact us
The earlier Kibel Green is brought in, the wider the range of restructuring options.
As operations and enterprise value deteriorate, the probability of a successful turnaround or
restructuring declines dramatically.
Potential Distress Signals Checklist
Breaches of key performance covenants (i.e., Late filing of financial statements/other
minimum EBITDA, maximum leverage or
EBITDA information
i f ti
interest coverage, minimum FCCR)
Tightening of availability/taking more reserves
Failure to meet business plan
Vendors tightening terms
Significant declines in cash flow
Significant litigation
Increases in days payables
Capital infusion by owner
Piecemeal asset sales
Large write-downs
Loss of key customer or vendor
Transfer to special assets division
Layoffs
Sales of debt obligations to other parties
High turnover at officer level
Death/incapacity of owner
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28. Kibel Green’s Approach
Our standard approach translates objective, fact-based analyses into tangible client benefits
Objectivity and Experience
A 3rd party that is the Honest Broker and can achieve results with key constituents
Critical, Thorough Analyses
Detailed cash flow, financial forecasts and valuations, and analysis of stakeholder interests
flow valuations
Development of Strategies and Plans
Vetting d/ d
V i and/or development of business plans that are believable to all key constituents
l fb i l h b li bl ll k i
Practical Solutions and Action Steps
p
Converting the Plan into action and guiding the client through the process
Positive Results for Clients
Achieving the client’s objectives
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29. Stabilized cash flow, enhanced relationship with outsourced billing company, evaluated
viability of expiring service contract.
Company Challenges Results Delivered
Multi-unit medical service provider Negotiated new lower cost contract
experienced strained relationship with provider.
with outsourced billi provider.
ith t d billing id Identified a discrepancy in data
Procedure revenue was in excess of transmissions, illustrated the
previous year yet cash difference and expedited the funds
reimbursements were considerable due to them.
lower. Provided tools to monitor and
Company knew something was estimate timely reimbursement.
wrong but felt paralyzed in how to Recommended to not renew
go about fixing the issue. contract and arranged for a fair and
Contract with local hospital was equitable wind down of operations
expiring and the company was
unsure if renewing would fit their
long term profitability goals
goals.
Jonathan J. Wernick Steven J. Green
Managing Consultant Co-
Co Founder & President
310-829-0255 x205 310-829-0255 x220
jwernick@kginc.com sgreen@kginc.com

30. Guided company through default with lender and restart operations.
Company Challenges Results Delivered
Established multi-location $50 Negotiated forbearance agreement
million manufacturer in over with bank.
advance position with lender.
d iti ith l d Prepared 13 week cash flow and
Forecasting tools and inventory streamlined financial reporting
management tools deemed package.
unreliable from bank. Initiated plan to get suppliers to
Suppliers refused to ship raw ship raw materials.
materials. Convinced management and
Bank and management considering bankers on the viability of a going
to close operations.
operations concern.
concern
Jonathan J. Wernick Steven J. Green
Managing Consultant Co-
Co Founder & President
310-829-0255 x205 310-829-0255 x220
jwernick@kginc.com sgreen@kginc.com

31. Enabled turnaround and achieved long-term agreement on $130 million syndicated loan.
Company Challenges Results Delivered
Multi-unit $350 million retailer Prepared an objective assessment
required line of credit for consumer providing clarity to the lenders.
financing.
fi i Implemented a weekly cash flow
Loan was in default and needed modeling tool to navigate tighter
restructuring. loan availability.
Lenders were concerned about the Created a dashboard of key
reliability of the business plan. performance drivers (KPI’s) to
Expanded rapidly in last 3 years assess and improve financial and
and internal infrastructure of operational results.
financial and purchasing practices Identified costs savings and
did not keep pace with growth. inventory reduction programs
Measures to cut costs and improve leading to significant improvements
working capital were not enough to in liquidity and profitability.
address decreasing revenues.
Jonathan J. Wernick Steven J. Green
Managing Consultant Co-
Co Founder & President
310-829-0255 x205 310-829-0255 x220
jwernick@kginc.com sgreen@kginc.com

32. Fostered confidence in financial oversight for an equity sponsor and asset based lender
Company Challenges Results Delivered
Equity sponsor of $30 million health Delivered a robust financial
and beauty aid manufacturer reporting package using the
unsure of company’s fi
f ’ financial
i l existing software. S l d back the
i ti ft Scaled b k th
stability and ability to report need for equity sponsor’s oversight
results. meetings from weekly to monthly.
Asset based lender concerned Increased credit line and reduced
about finance operations. bank fees.
Vendors losing trust with lack of Developed AP payment plan that
follow through on commitments clearly communicated to vendors
and communication. and adhered to.
Distributors were lax in paying in a Created weekly AR review process
timely manner. and customer contact campaign
that improved cash receipts.
Jonathan J. Wernick Steven J. Green
Managing Consultant Co-
Co Founder & President
310-829-0255 x205 310-829-0255 x220
jwernick@kginc.com sgreen@kginc.com

33. Contact Information – Los Angeles Office
2001 Wilshire Boulevard Suite 420 Santa Monica, CA 90403
866.875.0255 Tel 310.453.6324 Fax www.kginc.com
Steven J. Green, Co-Founder & President
310.829.0255 x220
sgreen@kginc.com
Jonathan J. Wernick, Managing Consultant, Turnaround Group
310.829.0255 x205
Jwernick@kginc.com
J i k@k i
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34. The Book -
How to Turn Around a Financially Troubled Company*
By Harvey R. Kibel
Selected by the Library Journal as one of the ten best business books. This unique turnaround manual gives you
principles and practical advice for survival in very tough situations Here are just a few of the key questions it
situations.
answers:
• Can I find a way to buy time for my company?
• When is a bank willing to function as a working partner rather than as an adversary?
• How can the vendor be given enough confidence in the company to deliver products.
*This book, a bible for the workout field, was selected as one of the ten best business books by the Library Journal
and resulted in Mr. Kibel's receipt of the National Award of Excellence from President Reagan at a White House
ceremony.
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