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.
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 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.
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.
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.
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.
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 as a result of 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% as a result of the issues, 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.
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 in a position to pay a one-time lump sum in order to pay off the debt in its entirety.
Knowing that the factor would be hesitant to fund the needed payoff by providing an over advance to its client, we decided to go out to the mezz lending market to seek financing if we could achieve the needed MCA payoff.
MCA Stacking Solutions first negotiated lump sum pay offs with the MCAs. Then, we introduced the company to a mezz lender who was willing to not only to finance the payoff but subordinate its debt to that of the factor; and also agreed going forward, if the company obtained PO financing from a 3rdparty, to further subordinate its mezz debt to both the factor and the PO finance company.
Sixty days following engagement by the company, MCA Stacking Solutions was able to negotiate a settlement with the 2 MCAs for payments of 50% of the outstanding debt, as well as arrange the financing of the payoff with the mezz lender at an annual interest rate of 29.5%.
MCAs: No doubt that the MCAs, facing the same issues that all businesses have been facing 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 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.
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. And, 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.