CASE STUDY FOUR: Services to Bank Groups

A $70 million manufacturer of both menswear and womenswear had a $22 million credit line shared by two different banks. The company approached Milberg at the urging of its banks, who were growing concerned about the soundness of their loans. At the time, the company had $17 million in total borrowing, which represented a $10 million overadvance (i.e., loan in excess of receivables). With only $1.5 million of the bank credit facility left untapped, the company was expecting to report a loss for the current year of over $5 million.

Milberg's due diligence revealed that although the manufacturer's recent entry into the menswear business was fundamentally troubled, the womenswear business had the potential to do well. We agreed to participate in the bank credit facilities and to manage and monitor the credit. As part of this arrangement, Milberg would factor the client's receivables and approve all new L/C openings, providing receivables management and inventory control to the company and the banks. As a result, the banks felt more secure, and the company became more financially disciplined.

We encouraged the company's management to focus on their profitable lines, advising them to sell the struggling menswear business, consolidate the womenswear business, which had operations all over the world, and become less vertically integrated. By following our advice, the company was able to decrease inventory and increase margins, generating $70 million in sales from the womenswear business alone.

Result: In less than two years, the overadvance came down from over $10 million to less than $1 million, bringing total borrowing down from $17 million to $9 million. The increased availability in their bank lines gave the company much needed liquidity and room for growth. The final proof of success was that the banks upgraded their rating on the company's credit.