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Recreational-services company manages and exits Chapter 11 bankruptcy in 9 months

A US provider of retail recreational services was in the midst of a crisis. Profitability had eroded significantly due to a combination of factors—a decline in consumer interest, along with a cutback in discretionary spending as a result of the economic downturn.
How we supported our client through chapter 11

Challenge

A US provider of retail recreational services was in the midst of a crisis. Profitability had eroded significantly due to a combination of factors—a decline in consumer interest, along with a cutback in discretionary spending as a result of the economic downturn. At the same time, high fixed costs (in the form of rental expenses for more than 300 locations), large capital expenses, and excessive leverage created a significant drain on the company’s cash flow, leading to a near-term liquidity crisis and formal restructuring.

Turnaround approach

Recovery & Transformation Services led the client through a restructuring program that included end-to-end support for the restructuring process, as well as an operational-improvement program to position the company for long-term, sustained growth.

With our significant restructuring experience, we supported our client through Chapter 11 in a few different ways. We provided expert-witness testimony and led the negotiation of a prearranged Chapter 11 plan of reorganization with key stakeholders. We also provided technical support by creating a claims-recovery model to anticipate claims and potential creditor recoveries. In addition, we maintained cash-forecasting models for 13- and 52-week periods, along with reporting metrics and variance tracking. Finally, we helped our client develop necessary capabilities, training employees on the bankruptcy process and preparing them for ongoing discussions with key vendors and suppliers.

From an operational perspective, we identified and executed substantial cost savings through a combination of benchmarking efforts and contract-renegotiation strategies. We also identified opportunities to increase revenue through tactical pricing increases and changes to in-store equipment. With the support of our Retail Operations Practice, we put in place a set of real-estate initiatives to reduce ongoing lease expenses and shed unproductive outlets. Finally, we developed a scenario-based capital-planning model for 300 outlets to prioritize capital needs and develop 5-year capital plans for several potential scenarios.

Impact

Amount our client increased EBITDA

As a result of the turnaround efforts, our client was able to increase earnings before interest, taxes, depreciation, and amortization by approximately 20 percent and significantly improve its actual cash balance within just 2 months. Through our support across all levels of the business, the company was prepared for a soft landing into Chapter 11, and management was empowered to carry on a successful restructuring program. The company exited Chapter 11 less than 9 months after entering under a plan that fully repaid its first-lien creditors in full.