Padgett Case

In: Business and Management

Submitted By davesigman
Words 968
Pages 4
Padgett Paper Products Case Study Solution
Case Solution Outline
-Summary
-Problem Statement
-Company
-Market
-Product
-Projections
-Options
-Current Capital Structure
-Proposed Capital Structure
-Review

Summary
Objective: To find a mutually acceptable debt structure that will minimize lender risk while increasing company value.

Constraints: 1) realistic cash flow projections, 2) Bank safety levels
Situation for each Business Group
Bank: Over extended and is in a bad situation. Lending exceeds reasonable levels and is not collateralized or subject to covenants.
An $8 million loan is abnormal for the bank. The company’s management does not appear to understand the unrealistic debt situation, the impact on firm value and impact on the upcoming audit report.
Management: Has unrealistic expectations and a lack of understanding of impact of current structure of firm value.
Company: The Company has considerable levels of equity and is not maximizing its financial structure. It is capable of taking on considerably more debt, however, the debt needs to be more appropriately structured.

Ownership: Closely-held company with owner having little interest in management. Owned for dividend distribution.

Problem Statement: Because of inflation and an acquisition, Padgett's financial needs have risen to a permanent level rather than being merely seasonal in nature. Management at the company's bank must revise Padgett's debt structure in a mutually satisfactory manner.

The Company Background
1. Closely held public company (OTC)
2. MFG stationery including notebooks, loose leaf binders, filler paper
3. 100 years old
4. Management is professional but not finance savvy
5. Customers: 5,000 wholersalers and retailers in US & Canada (not subject to concentrations)
6. Seasonal cash needs - back to school push
7. Minor…...

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