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Improving Underperforming Bonds
Situation:
Underperforming loans put bond holders’ investments at a significant risk.
Solution:
The HK Turnaround team suggested the company be wound down upon satisfying the bond holders.
Details:
A finance company was formed under Colorado Law and headquartered in Denver to provide construction financing. A bond offering was made successfully and approximately $2 million was sold. There were four equal partners involved, two in Denver and two in Arizona. One of the Denver partners served as president and the other as CFO.
The company made a series of loans, a significant portion did not perform, and the bond holders’ money was at risk. Further, the two Denver partners used the company to fund their own development and even their personal expenses. These were booked as loans but there were no means of repayment since the real estate market had by now headed south.
The HK Turnaround team came in at the request of one of the Arizona partners and performed an in depth financial analysis. Numerous accounting irregularities were discovered. Further, aside of insider transactions it was determined that the company had no serious prospect for continuing operations and was quickly accruing serious debt.
It was determined that the best possible solution was to dissolve the company if the bond holders could be satisfied. A buy out of the Denver partners was engineered by HK Turnaround on behalf one of the Arizona group in return for the forgiveness of their personal debts and forward liabilities. Armed with effective control of the company, the outstanding loans were called or sold with substantial help from the HK Turnaround team. The result was sufficient enough liquidity to make the bond call. This was all conducted with the help of the HK Turnaround team, who worked closely with the bond trustee. Eventually the company was wound down and closed.