case examples of recent mca reductions

Background: A company organized and operating outside of New York state had a factoring relationship with outstanding A/R of approx. $20 million, one of the factor's largest credit facilities. The factor had a perfected first position security interest in all assets of the company and, other than its A/R, the company had no other significant assets. Factor learned subsequently that the company had 6 different outstanding stacked MCA loans from 5 different MCAs, including a total MCA debt of principal and interest of nearly $6 million.

Strategy:  Following a referral to the company from the Factor, in less than 30 days following engagement as the company's restructuring officer, MCA Stacking Solutions, working with the CEO and CFO of the company, formulated and implemented a plan of action that included:

• Changing the company's treasury banking relationship from a large national bank to a local bank in the state where the company was located, in order to make it more difficult for the MCAs to locate the company's bank account(s).
• Cutting off the MCAs' ability to debit daily payments, totaling $285K weekly, from the company’s original bank account.
• Advising the MCAs that MCA Stacking Solutions was the company's newly appointed restructuring officer and that all further communications would be between MCA Stacking Solutions and the MCAs, thereby relieving the company officers from further pressure and stress.

Resolution:  Following nearly a year from the time daily debits were cut off, without any further payments to the

MCAs in the interim, MCA Stacking Solutions was able to achieve a global settlement with all 5 MCAs for a total payout by the company of $1.3 million.

Outcome:

• MCAs: The MCAs learned that they did not have the leverage they once thought existed because of changes to the law as well as the perfected security interest of the Factor, resulting in their willingness to negotiate and settle the debt for far less than was originally owed.
• Company: MCA Stacking Solutions saved the company more than $5 million in principal and interest by blocking the daily debits and stretching out the timeline, which kept the firm in business and increased its cash flow. By the time the case was settled a year later, the company’s business had grown year-over-year in significant part because of the added cash flow Marc’s strategy provided and the ability of the company to manage its business without the stress of the MCA payments and debt hanging over its head.
• Factor: The return of financial stability of the company reduced the Factor's credit risk from the stacked MCA debt and further added value to its security interest.

Background:  A North American distributor of finished goods to more than 7,000 retail locations in the US, Canada, and Mexico incurred significant cash flow issues resulting from the COVID-19 pandemic. The company’s offshore manufacturer was unable to ship product and the retailers were shut down for several months as they were not in an essential goods industry. The company had a factoring relationship, however, its sales shrunk by more than 72% resulting from these events, so in order to stay in business it turned to the MCA world and took out 2 MCA loans and was paying interest on the debt far in excess of 100%. The factor referred the company to MCA Stacking Solutions.

Strategy:  MCA Stacking Solutions, from its vast industry knowledge, knew that it was likely that the MCAs would take a significant haircut on the amount of its debt if the company was able to pay a one-time lump sum in order to pay off the debt in its entirety, which is typically attractive to the MCAs rather than receiving reduced or no payments and extending the timeline for repayment.

Knowing that the factor would be hesitant to fund the needed payoff by providing an over advance to its client, MCASS went out to the mezz lending market to seek financing to achieve the needed MCA payoff. MCA Stacking Solutions first negotiated lump sum pay offs with the MCAs, following which it introduced the company to a mezz lender who was willing to not only finance the payoff but subordinate its debt to that of the factor; and also agreed going forward, if the company obtained purchase order (“PO”) financing from a 3rd party, to further subordinate its mezz debt to both the factor and the PO finance company.

Resolution:  Sixty days following engagement by the company, MCASS negotiated a settlement with the 2 MCAs for payments of 50% of the outstanding debt, as well as arranged the financing of the payoff with the mezz lender at an annual interest rate of 29.5%.

Outcome: 

• MCAs: No doubt that the MCAs, facing the same issues that all businesses faced as a result of the pandemic, were hungry for cash. Typically, although MCAs will say, even during COVID-19, they are financially stable, in fact, many of the MCAs were and still are in dire straits, which certainly provided an opportunity in this case, and led to the final settlement.
• Company: MCA Stacking Solutions saved the company significant dollars, found it a new finance partner to join its finance team with the factor, and set the company back on its feet, coincidentally, just as its manufacturer was able to begin shipping goods and its retail industry was beginning to reopen. The company realized its largest sales revenue in the history of the company 45 days following settlement with the MCAs. An added benefit to the company was that it has since received additional financing from the mezz lender to assist in its company growth.
• Factor: The factor was fully cooperative in working with us as well as the new mezz lender because, as in most of these cases, the factor’s credit risk was reduced by the reduction in junior debt and its security interest strengthened. The factor’s relationship with the company also benefited because it referred the company to MCA Stacking Solutions for a solution, thereby further cementing its partnership with its client.

Background:  On referral from a factor, MCASS was engaged by a commercial printing company who originally had $6.8 million dollars of MCA debt, with a balance due at time of engagement of $5.0 million. The client was in default of the contracts as it was unable to maintain weekly payments of $148K to the MCAs. The factor had been supporting its client by providing over-advances that allowed the business to pay its MCA debt earlier in the relationship, but had cut off any further advances to the client to do so. The client was on the verge of having to file bankruptcy. 

Strategy:  MCASS initially approached the MCAs and arranged agreement with all to accept lower weekly payments that totaled less than 50% of the contract rates. Unfortunately, because of the client’s difficult cash flow situation and the factor’s refusal to support the temporary reduced payment structure, in less than a month’s time the client defaulted on the reduced payment plan. MCASS had to pivot to implement an alternative solution in this most difficult case.

With the cooperation of the client, the client decided to sell its business to an industry related competitor, which facilitated a payoff of the factor, its trade creditors, and most importantly, its MCA debt, resulting in the client, who had given a personal guaranty on its factor and MCA debt, being released from that obligation. 

Resolution:  MCASS negotiated with the MCAs to accept a total payoff of $1.8 million of the $5.0 million debt, which payoff was funded by providing a small cash advance funded by the Factor and an assignment of a portion of the client’s outstanding accounts receivable held by the Factor. The MCAs were left with the responsibility to collect the assigned A/R. The Factor was paid as were the trade creditors, and the business was sold, and the client released from its debt obligations.

Outcome:

•  MCAs: MCASS convinced the MCAs that it was either the reduced payoff or no payoff at all. MCASS leveraged the senior security position of the Factor to show that if the MCAS did not take the offered deal they would get nothing. The MCAs were not pleased to say the least, but recognized the practicality of the situation.
• Company: Needless to say, the client’s first choice would not have been to sell his company. However, recognizing that the alternative would have likely left him personally responsible under his PG amongst the Factor, trade creditors, and MCAs, of more than $10.0 million of debt, he made a difficult but sensible business and personal decision. 
• Factor: Before assignment of a portion of the A/R to the MCAs, the Factor collected the balance of the outstanding A/R that was needed to pay the Factor the amount it was owed including its over-advance. The Factor did provide the initial cash advance for the settlement with the MCAs, but that amount paled in comparison to what the Factor collected. The Factor stepped up to the plate to make the deal happen recognizing that it was favorable to all interested parties.