Lead Article in the Money Section of the Tulsa Business Journal - Guest Commentary
by Stephen Hillman, Editor-in-Chief
The big picture may be unnerving enough, but the principals of a Tulsa mergers and acquisitions and restructuring firm warn that there may be repercussions from the national financial crisis that local firms may not realize they should be on guard against.
“This is just one of the ones that people are not thinking about,” said Matthew J. Bristow, managing director of ClearRidge Capital LLC, 427 S. Boston Ave., Ste. 702. “There is not much that we can do to change what the U.S. Treasury policy is going to be on the $700 billion bailout – that is certainly necessary to ensure that liquidity remains. It is essential.”
Bristow said with tightening credit markets and the potential for unforeseen circumstances diminishing a company’s profit potential, firms should take a close look at the fine print on their loan agreements for covenants regarding their profit-to loss ratios.
“Pretty much every company out there is going to have current loans … within the loan agreements are going to be covenants,” he said. “There could be nothing wrong with the company fundamentally, but there will be a certain amount of risk that whoever was providing that loan was comfortable with.” That will often appear in a loan agreement as the loan-to-profit ratio, he said.
“If the profitability of that company drops, then the profit-to-debt ratio could swing below a certain number at which it risks defaulting on that loan, not because the company is not able to keep making the repayments, but because it is breaking the covenant, which is the amount of risk that the person taking on that loan was comfortable with,” he said.
Bristow this year joined forces with longtime local M&A and restructuring veteran Bruce Jones to form ClearRidge Capital. Throughout his 30-year career, Jones has bought and sold more than 200 companies in a wide range of industries. Prior to co-founding ClearRidge Capital, Bruce was the managing principal of an M&A, restructuring and turnaround firm he founded with the owners of professional services firm.
Originally from the United Kingdom prior to moving to Tulsa in 2007, Bristow had many years of investment banking experience in London, England where he ran a derivatives trading division in The City. Bristow was an expert speaker on futures, foreign currency and CFD trading, with his market commentary broadcast daily by Bloomberg, Reuters and Dow Jones. He was a member of The Tulsa Business Journal’s 2008 class of 40 under 40.
ClearRidge Capital represents the owners of midsize companies in planning, preparing and executing the sale of their company, and also advises corporations, funds and investment groups on acquisitions of middle market companies.
Even though Oklahoma has a strong economy compared to the rest of the U.S., there will be companies affected by the current financial crisis, Bristow said.
“There is a lot of interest (in Oklahoma firms) from a lot of buyers from companies around the rest of the U.S. because the companies here are performing so well, particularly energy related companies,” he said. “But Oklahoma is not immune from what is going on with the rest of the country.”
He noted that even if there is a lag locally where the housing market and the general economy hasn’t had an effect as it has elsewhere, “there will be companies that are going to suffer and risk credit problems, which is just a normal part of doing business,” he said.
Even if a firm defaults on the profit- to-loan ratio and goes back to the lender to renegotiate the terms of the loan, the company will not be able to get xxxxxx terms,
“Given the credit markets the way they are right now, they are probably going to be screwed,” he said. “Minor problems that don’t really exist right now could be worse if they don’t plan in advance,” Bristow said. What we would encourage people to do now is, well in advance of them having any problems, go back and look at the credit agreements that they have, look at the covenants that are associated with them, forecast the worst case scenarios and how that could impact them with the loans that they have now and make the pitch to whoever their lender is well in advance of any problems.”
“You will be in a much stronger position than if you wait until there is a real problem.,” he said. He said there are other steps that businesses can take to reduce or avoid problems down the road.
“We are just thinking more on the local level now,” he said. “Business owners should be carefully considering any unnecessary expenditures that they may be making in anticipation of tough times. That does not mean that you have to stop trying to grow the business, maybe just review everything that you would have been doing.”
All rights reserved. Copyright ClearRidge Capital, LLC, 2008.
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