Cross Match Technologies

Situation

The Company’s legacy business had declined due to reductions in once-profitable government contracts and the Sponsor had put a new management team in place to reposition the business going forward.  That management team uncovered significant weakness in the pipeline and projected that the Company would be in breach of its debt covenants over the next several quarters. The Company had a relatively complex capital structure for its size, including a revolver and two-tranche term loan totaling approximately $75 million (the “Bank Debt,” owed to the “Banks”), the second tranche of which (roughly $33 million) had been guaranteed by the Sponsor (the “Guaranty”).  Another $25 million of Sponsor-guaranteed debt sat at the holding company (the “HoldCo Debt,” owed to the “HoldCo Lender”).

Engagement

Gordian was engaged by the Company to assist in the restructuring of its Bank Debt such that the company would have the necessary liquidity and runway to execute on the restructuring of its business.  After conducting extensive diligence Gordian developed and presented to the Company and Sponsor a series of proposals and strategies aimed at encouraging the Banks to give the Company breathing room – and perhaps some Guaranty relief. Additionally, and in order to afford the Company options, Gordian ran a carefully tailored process to identify financing alternatives in the absence of accommodation from the Banks.

Outcome

A proposal to amend the Company’s debt agreements was presented to the Banks, who immediately engaged their own advisors.  While the initial spread between the Company and the Banks was quite large, through careful use of the carrots and sticks developed by Gordian an amendment term sheet was hashed out over several months of extensive negotiation.

In parallel to this, Gordian was able to identify and then position a third-party alternative to close on a refinancing in the event negotiations with the Banks stalled or resulted in less-favorable terms.

The negotiations ultimately achieved significant covenant headroom and an infusion of capital in the form of an incremental term loan provided by a member of the Bank group and the HoldCo Lender, all with no dilution to the Sponsor’s equity position. The Sponsor avoided paying on any portion of the Guaranty and the Company was left with a vastly improved liquidity position.