Case Study: McCulloch Corporation

Description:
McCulloch Corporation was a manufacturer and distributor of branded chainsaws and other garden power equipment. Following its fifth leveraged buyout in a twenty year period, the company was overleveraged and could not service its debt obligations.  The equity sponsor had just injected $10 million in fresh capital, but due to inaccurate internal reporting, the funds were absorbed into the business without any material improvement in operating runway.  The senior secured lenders were putting significant pressure on the company, management was in disarray, vendor and customer relationships were strained and the equity sponsor was essentially ready to walk away from its investment.  We were retained to provide interim executive management services and quickly develop and implement a plan to maximize recoveries.  Shortly after our arrival, and in an attempt to force the equity sponsor to infuse additional capital, the senior secured lenders arbitrarily cut off funding, leaving McCulloch with no ability to meet payroll.

Process:
All US based employees were immediately furloughed.  We convinced the lenders that recoveries would be maximized through a going concern reorganization and sale process and funding was resumed.  However, during the brief period of shutdown, vendor and customer relationships were damaged beyond repair and three creditors joined together to file an involuntary bankruptcy petition against McCulloch.  We converted the case to a Chapter 11 bankruptcy and executed an orderly liquidation of the business.  We positioned one of our principals in the company’s European headquarters to stabilize the profitable European operation, set up a stalking horse bidder for the European business as a going concern and executed a very successful §363 sale. The buyer did not acquire the company’s German operation so we took over as general manager of the entity and liquidated it in an orderly fashion.  As part of the liquidation of the US operation, we were able to execute a sale of the US branding rights to a licensing company.

Results:
A disorderly liquidation was averted, and a highly successful orderly liquidation process was completed.  The senior secured lenders were paid in full, and a substantial recovery was delivered to the equity sponsor.