Padgett
Padgett Blank Book Case
Problem/Current Situation
In early 1988, Padgett Blank Book Company had $3.6 million dollars financed at prime on 90-day notes through its sole lending bank, Windsor Trust Company. A coveted competitor came on the market and Padgett acted quickly to purchase before it fell to their competitors.
Understanding Padgett’s needs and valuing their business Windsor responded to Padgett’s request for an additional $3.6 million to make the acquisition. Given the short notice, the additional amount was added to the existing $3.6 million bringing the total financing to $7.2 million well beyond Padgett’s advised $5 million dollar credit limit. Still Windsor approved the deal with an understanding that the arrangements would need to be restructured to reduce their exposure from such a large outlay of funds on 90-day notes with no protective covenants.
Windsor originally brought Padgett’s management a suggestion of financing a large portion of outstanding notes as long-term debt from a life insurance company. This wasn’t perfectly ideal to Windsor as they would loose interest income and Padgett’s management flatly refused the idea because of the high fixed interest rates offered and accompanying covenants of the deal that could cause Padgett to violate the terms without any mismanagement. Padgett’s management was happy with the 90-day note arrangement and could not understand why the arrangement needed to be restructured. Windsor continues to desire to find covenants/collateralization that would reduce their exposure in amount of credit they have extended and still be agreeable to Padgett, and maintain a valued customer.
Assumptions
•
All dollar values within the document and in Appendix A are in thousands of dollars unless otherwise specified.
•
At the time of this writing an RMA Book to compare industry averages of ROE, ROA,
A/E, total asset turnover, and net profit margins was unavailable. While the industry averages would be preferable, given
Problem/Current Situation
In early 1988, Padgett Blank Book Company had $3.6 million dollars financed at prime on 90-day notes through its sole lending bank, Windsor Trust Company. A coveted competitor came on the market and Padgett acted quickly to purchase before it fell to their competitors.
Understanding Padgett’s needs and valuing their business Windsor responded to Padgett’s request for an additional $3.6 million to make the acquisition. Given the short notice, the additional amount was added to the existing $3.6 million bringing the total financing to $7.2 million well beyond Padgett’s advised $5 million dollar credit limit. Still Windsor approved the deal with an understanding that the arrangements would need to be restructured to reduce their exposure from such a large outlay of funds on 90-day notes with no protective covenants.
Windsor originally brought Padgett’s management a suggestion of financing a large portion of outstanding notes as long-term debt from a life insurance company. This wasn’t perfectly ideal to Windsor as they would loose interest income and Padgett’s management flatly refused the idea because of the high fixed interest rates offered and accompanying covenants of the deal that could cause Padgett to violate the terms without any mismanagement. Padgett’s management was happy with the 90-day note arrangement and could not understand why the arrangement needed to be restructured. Windsor continues to desire to find covenants/collateralization that would reduce their exposure in amount of credit they have extended and still be agreeable to Padgett, and maintain a valued customer.
Assumptions
•
All dollar values within the document and in Appendix A are in thousands of dollars unless otherwise specified.
•
At the time of this writing an RMA Book to compare industry averages of ROE, ROA,
A/E, total asset turnover, and net profit margins was unavailable. While the industry averages would be preferable, given