Opening the toolbox

As a professional, it is easy to call on a few well used tools to deliver a project. These skills are understood, and do the job. But sometimes, the project is just a bit more complex.

 

The company was a major infrastructure developer. It had multi-billion pound programme, but through difficulties in delivering milestones, it was incurring increased costs. The funders (and there were 12 facilities and bonds) were concerned with the programme and the funding covenants were under increasing stress.

 

We were called to find additional finance. The funders liked the sponsors to add equity, but for the shareholders, that was a proposal too far. Creativity was called for.

 

Seek first to understand.

Our first step was to understand what was acceptable. We identified that there was a willingness to consider a refinancing ahead of distress, but that any package would need to see pain being shared.  We looked at the funding documents and financial model to understand what we can do.

 

Using our debt finance, modelling and tax tools, we found something. The company was accumulating tax assets – to be used a decade later- and they could be monetised as part of a deal that would see additional funding coming in. But to do that, the funders, the shareholders and the company management team all had to agree. And each party had a very different position. So we listened, and we used these skills to separate the red line issues from those that could be negotiated. We started to find that some lenders were potential allies.

 

Then be understood.

A proposal was put to the funders, supported by a fundamentally changed financial model. As part of the deal, the funders would put in more debt, and as part of the equity finance part of the deal, would have their security weakened in the short term. However, the main Fulcrum parties had already given their support, and after two rounds of negotiations, agreement was found.

 

From the shareholders’ perspective, there was also the IFRS impact. This transaction could be seen to diminish the value of their investment. Accounting tools were now drawn on to structure the deal to ensure that write down was balanced by a profit from the deal.

 

Delivery is 90% of everything.

The final step was to execute. The transaction required the delivery of financials – and tax return – in a quarter of the time previously taken. This called on our financial management and leadership tools. The entire process of financial reporting, capital allowances and forecasting was re-engineered over 4 months.

 

Outcome

The company improved its financial stability. It better understood its funders, and it better understood its own financial processes. It did not improve its supply chain – it is difficult to see how it could – but it helped ensure that the programme continued for another 18 months.

 

In a project, sometimes you cannot rely on just a few skills – instead you get to use them all.