The COVID-19 pandemic pushed many business owners into crisis management mode to identify the best way to pivot and ensure sustainability. During this TRU Snacks session, we will provide insight on how to determine the right path forward when restructuring a financially distressed company. https://www.citrincooperman.com/infocus/tru-snacks-webinar-series

1. Determining the Right Path Forward When
Restructuring a Financially
Distressed Company
February 4, 2021 | TRU Snacks Webinar Series

2. JOE CASHEL, CTP, CIRA
Principal, Leaderof the Bankruptcy & Restructuring Services (BRS) Practice
Citrin Cooperman
jcashel@citrincooperman.com
212.697.1000
Welcome &
Introduction
Joe Cashel is a principal and practice leader of the firm's Bankruptcy and Restructuring Services
Group. He has over 20 years of experience providing financial advisory and restructuring services
to distressed entities and various creditor and lender constituents both inside and outside of the
bankruptcy process. He also specializes in providing expert witness services to both Plaintiffs and
Defendants in a variety of bankruptcy litigation matters.

3. AGENDA
I n d i cators o f F i n an cial D i str ess
01
Per fo rm in g a Str ateg i c Assessm ent 02
Str ateg i c Op ti o n s fo r a R estr u ctu rin g 03
H o w We C an H el p 04

4. Indicators of
Distress

5. • Does the company have recurring operating losses?
• Is the company underperforming relative to its business plan
objectives and forecast?
• Has the company been burning through cash on a continual basis
over the past 3-9 months?
• Is the company running out of availability under its revolving credit
facility? Is the company having difficulty raising new capital?
• Is the company bouncing up against debt covenant levels or
violated any covenants at this point?
• Has the company failed to exit unprofitable business units?
• Are the company’s inventory levels increasing (slow-moving)?
• Are the company’s accounts payable or receivables outstanding
increasing significantly?
Questions to Ask

6. Indicators of Financial
Distress
• Cash Flow Issues:
o Cash flows are a critical indicator of financial distress and
continued negative cash flows are usually the first sign and
number one reason why most businesses fail.
o Sustained operating underperformance, over investing and poor
financing decisions can impose severe liquidity constraints on a
company.
o This ultimately raises a company’s business risk and lower its
creditworthiness with creditors, suppliers, investors and banks
eventually limiting access to the funds and leading to the failure.
• Liquidity Issues
o When a company does not have the ability to pay its short-term
obligations, it is either nearing or experiencing a “liquidity
crisis.”

7. Indicators of Financial
Distress (Cont’d)
• Secured Lender Issues:
o Defaulting on loan payments.
o Company’s relationship with its lender is strained.
o Covenant violations or increased reserves against availability.
o Reliance on “amendments” and/or forbearance agreements to
remain compliant with loan documents.
o Current and long-term debt exceed value of assets (excluding
goodwill or other intangibles).
o Increases in interest payments are imposed.
o Significant near-term debt maturities.

8. • Other Indicators:
o Loss of key personnel, including members of the board and
executive team, as well as high performers.
o Ratio analysis - deterioration in Cash, Current and Quick ratios
o Decreasing or flat revenues and shrinking margins
o Increasing in overhead costs
o Lack of any recent CapEx investment
o Loss of key suppliers and customers; refusing to do business or
aren’t coming back.
o Varying levels of performance across business units; service laps.
o Accounting system and other IT related issues.
o Significant pending litigation.
o Quality issues with products and services.
o Market share losses; shift in market focus.
o Legal and contractual non-compliance.
o Hiring of restructuring professionals (attorneys, investment
bankers, etc.)
Indicators of Financial
Distress (Cont’d)

9. Performing a
Strategic
Assessment

10. • Perform an in-depth analysis of the company’s historical financial performance (profit/EBITDA).
• Evaluate the company’s business plan initiatives and projections and test assumptions.
• Evaluate the company’s current business (pricing, agreements, amount) and prospects for future
business (by customer, by product or service). Is the company viable as a going concern?
• Assess the company’s cost structure (variable vs. fixed costs) to identify cost cutting measures,
including preparing sensitivities illustrating the impacts of implementing restructuring measures.
• Assess the company’s asset base and overall debt capacity to determine the appropriate go-
forward capital structure for the company. This may require 3rd party appraisals of the company’s
inventory and fixed assets and a surgical review of the company’s receivables.
• Perform an overall valuation of the company under various methodologies, which will be crucial in
determining which strategic option will result in the highest and best outcome for stakeholders.
Quantitative
Performing a Strategic Assessment

11. • Evaluate the company’s operational strengths and weaknesses.
• Assess the attractiveness and demand for the company’s products/services. Niche and high
value-add products/services are viewed as having a “reason to exist.”
• Competitive advantages – propriety technologies or processes, specialized/customized
equipment, patents, etc.
• Determine key relationships with customers/vendors and assess customer concentration,
profitability by product, and the ability of customers to source work to alternate vendors.
• Assess the company’s geographic presence and determine the appropriate go-forward
footprint for the business (enter/exit certain geographies).
• Identify the universe of potential buyers both strategic and financial.
Qualitative
Performing a Strategic Assessment

12. Strategic
Options for a
Restructuring

13. Overview of Strategic
Options
1. Restructure Debt with Existing or New Secured Lenders
• Attainable when the company is only slightly underperforming or when the company
is demonstrating progress towards meeting its turnaround plan objectives and is
getting “back on track.”
• Highly contingent on current market conditions. Is there enough liquidity in the
market? What is the lender’s perspective on the attractiveness of the company’s go-
forward business model?
2. New Capital Investment
• More likely to gain the support of other key stakeholders if new 3rd party equity
source exhibits commitment to the go-forward business.
• May be necessary to fund initial operating working capital commitments.
• This will dilute existing equity investments and change ownership structure.
3. Pursue a Going Concern Sale
• Determine if the sale of the company as a going concern is likely to create more
value for its stakeholders than if the company was liquidated.
• Sometimes this is the most attractive option other than liquidation given the amount
of harm done to the company’s reputation in the market given its struggles.
• Factors to consider include execution risk and the incremental cash burn/funding
required to conduct the sale. This may ultimately determine if the sale resulted in
the highest value and therefore was the best strategic alternative.

14. Overview of Strategic
Options (Cont’d)
4. Restructure Debt & Continue as a Going Concern
• Determine whether a combination of a capital infusion and refinancing will result
in a new capital structure that best positions the company for future success.
• What is the TEV of the restructured business? This will drive negotiations as it
ultimately impacts the amounts received by various stakeholders in the post-
restructured company.
• Note that this option sometimes is difficult to execute “out-of-court” (contentious).
5. File Bankruptcy (Chapter 11) and Pursue a Restructuring
• Bankruptcy is merely a mechanism by which the company can execute its
reorganization strategies, including a reorganization of the company’s balance
sheet, a sale (typically through a Section 363 sale process), the shedding of
certain liabilities, etc.
• Depending on the situation buyers may require that the company be sold through
a bankruptcy process to “cleanse” it of certain contracts (service/product/
landlord), liabilities, and undesirable parts of the business.
6. Liquidate (Liquidating 11 or Chapter 7)
• If the business cannot be sold through either an out-of-court or in-court (Section
363) process, then a liquidation of the company’s assets may be the only option.
• Liquidation is the last resort as it typically results in a significant loss for
shareholders, lenders and a loss of jobs for management and employees.

15. How We Can
Help

16. • Short-term cash management & tracking
• Cash flow forecasts
• Identify liquidity challenges
• Liquidity improvement strategies
• Administration of working capital
• Vendor negotiation strategies
• Operational diagnosis
• Target operating model design
• Cost analysis and reduction
• Process enhancement and realignment
• Asset redeployment and acquisition strategy
• Metrics development and benchmarking
• Turnaround strategy development and execution
• Financial modeling and financial projections
• Strategies for negotiations with interested parties
• Contingency planning
• Plan development and execution
• Bankruptcy related services
• Debt reduction strategies
• Capital structure enhancement
• Debt collateral assessment
• Creditor negotiations
Liquidity Management
Operational Improvement
Turnaround & Restructuring
Financial Restructuring
Restructuring & Turnaround Services
• The Company must act quickly as there is no time to waste!
• The earlier distress is identified (referto indicators), the greater the likelihood is of achieving a successful turnaround.
• This will require a “rapid assessment” (see qualitative/quantitative strategies)and urgent decision-making.
• Citrin Cooperman has a deep bench of restructuring and turnaround professionals who bring fresh perspectives to crisis situations to
work with managementin identifying, assessing, and implementing strategic options as part of a turnaround business plan.

17. Other Bankruptcy and
Restructuring Services
• Lender Advisory
• Interim Management Service
• Bankruptcy Administration
• Creditor Advisory
• Bankruptcy Litigation
• Fiduciary Services (Trust Administration)

18. Questions?

19. Thank You
For Watching & Listening
JOE CASHEL, CTP, CIRA
Principal, Leaderof the Bankruptcy & Restructuring Services (BRS) Practice
Citrin Cooperman
jcashel@citrincooperman.com
212.697.1000