Staying with a Client for the Long Haul
Founded in 1938, this California-based company is currently a distributor of pneumatic tools for the construction and industrial markets. When it came to Celtic Capital, it was both a manufacturer and distributor of pneumatic tools.
The company was owned by an equity group and was losing money. Management was contemplating shifting the manufacturing over to Asia in order to save money but it couldn’t decide if that was a good idea or not. In the meantime, due to losses, its lender (an asset based financed firm) asked the company to find new financing.
Celtic Capital came in and provided both an A/R Line of Credit and a Term Loan. Months later, the equity group brought in a new management team and began the process of moving the manufacturing to vendors in China. Once that decision was made, the company auctioned the equipment which provided sufficient proceeds to both pay off the Term Loan and to revamp the company solely to distribution – it purchased inventory (parts) to send to China.
While the company was struggling with the decision whether or not to outsource, and losing a great deal of money, Celtic Capital hung in. And all during the management shake-up, we hung in as well. We helped through all of the transitions because we saw the value in the company and had faith in the equity group to make the right decisions to move the company forward.
Almost eight years after coming to Celtic Capital, the company had made enough money to pay us off. This is truly a great success story. Not many troubled borrowers successfully pay off their lender from profits. Having paid us off, the company didn’t need other financing. Management did, however, obtain a line of credit with a bank “just because.”
Why did the company stay with Celtic Capital for so long? Management didn’t want to deal with bank covenants and they wanted the freedom to pay equity ownership distributions and repay our debt as quickly or slowly as it desired. Plus, the relationship was good – good service, we believed in them and helped them through some rough times, and we adjusted the structure of our financing to accommodate the company’s changing needs.