It didn’t matter how many times Mike read the collateral exam; he couldn’t shake the feeling that something was off with this prospect. Meanwhile, Darren, the experienced relationship manager for the potential credit, developed a twitch of his own as he piled intrusions into Mike’s day. “Can I tell the XYZ Company we have a deal?” “When is underwriting going to be done?” “The prospect is talking to other options?” “We’re going to lose this deal today.” The escalations continue to climb.
This credit was tricky. XYZ’s current lender asked them to leave the bank and put the screws to them to see that it happens quickly. The credit wasn’t going to be easy. Mike knew the portfolio team could handle the collateral. The field exam had given the usual caveats, but there was a way to wrap a deal around the issues. However, it was clear the company was in a turnaround situation. Their current bank wanted them out in the worst way. The company had retained a turnaround consultant and, as a result, was introduced to Mike’s institution. The underwriting process so far was smooth: Mike and the team had toured the company, met management and asked questions. Management, with the aid of the turnaround consultants, was able to answer almost every question. What they couldn’t answer, though, was what happens when the turnaround firm leaves? Mike questioned if the management team that got the company into this mess were really the guys that could get them out. He needed to decide if this turnaround would actually finish or if he was simply taking on a liquidation rather than a client.
Time was ticking and the only thing holding up the deal was a gut check. Mike confessed that he didn’t understand management. How do they expect to turn this company around when availability will be tight? The cynic in Mike wasn’t sure how long it would be before management came back and asked for an over-advance as a bridge for some sudden unforeseen issue.
Mike decides to underwrite the deal subject to an independent review. Darren chokes, feeling his commission slip away. But Mike has one more trick up his sleeve. He needs five days to close and in that time he wants one more pass at the review. Mike reaches for the phone and calls Newpoint Advisors Corporation for a TAMETM interview. He gives the green light to legal, conditioned on this test.
What Mike Wants
XYZ’s management team has worked with a consultant to make a plan. The turnaround has started, but is not complete. The consultant can’t stick around much longer due to cost, and the question is, can management hit the numbers? Mike is troubled by two unknowns. First, the field exam can’t tell him if management is capable – it simply tells him that management can organize most of the records. Second, the cash flow budget doesn’t say anything about management’s capacity to hit the numbers. Mike foresees that, in a few weeks, costs will decrease after additional cuts are made, and he can see that, in a couple months, some asset sales will take his expose down to a more reasonable level. However, that’s all in the future. Can they really accomplish this? How does Mike know that XYZ won’t digress as soon as the bank and consultants are gone?
Mike needs to understand how they are going to turn the company around. Management has some metrics in place to track operations, but most are new and not tested. Prior to that, management didn’t measure things that seemed to matter to them. It’s typical to have a limited amount of data about management performance other than the fact that a turnaround is happening. So Mike hires Newpoint to review the company. Within hours the TAME interview process starts.
Meet Turnaround Action Matrix Evaluation (TAME)
Newpoint used their proprietary diagnostic tool to measure the likelihood that management could pull out of this situation. TAME is a way to back away from the financial numbers and examine not only how management conducts itself, but how the company functions on a day-to-day basis. It seeks out immediate threats that would cause a turnaround plan to fail. TAME makes an operational connection to the numbers in a cash budget or a plan. It gets inside management’s head and scans the workflow and communications at the tactical level to determine if management has the ability to work in a focused way and communicate and execute crisply. TAME quantifies softer topics like culture, infrastructure, data availability, and outside influences to derive a score that points to a likelihood of a company making it or failing.
Below is one of several reports that come out of a TAME report. The key is the simplification of the results of a complex and data-poor situation and the ability to determine your confidence in lending.
Three days later Mike receives his assessment. He reviews it and studies the numbers. He finds comfort with the deal that he could not have imagined. TAME unearthed three things that XYZ’s management struggled with that threatened this credit. Instead of wondering what or when the turnaround was going to spoil this relationship, he was now armed with three communication points that management could work and report on weekly in order for Mike to monitor the credit. Additionally, Mike and his people could work with XYZ’s management in order to complete the turnaround – a game changer in terms of attitude.