Padgett Company
BA280.1: Corporate Finance
Case #3: Padgett Paper Products Company
Almera / Demasu-ay / Libo-on / Olaño / Reboton / Relucio / San Luis
============================================================
Overview
Our company, Padgett Paper Product (PPP) is a closely held publicly listed paper manufacturing company whose ownership remained with the descendants of the founder and whose majority of family members was inactive in company’s management. Major connection of these family members came in the form of quarterly dividends.
The current market is being dominated by large companies, and recent events such as inflation, tax rule changes and drop in the stock market caused smaller firms to sell, opening the business for more consolidation. As a response to the market situation and part of our company’s financing activity, we had borrowed small amounts off and on from Caslon Trust Company of Richmond on a short term 90-day notes for minor acquisitions. We took significantly more debt when the company decided to acquire Tri-State Tablet.
Caslon Trust Company has considered us a valued client and a major contributor to its profitability, as our only lending bank in 1997. The bank also serves as depository of the company’s tax payments. Thus, Caslon has been generous in lending us to the point that it allowed exceeding its credit limit with the rate still continued at a prime and with no protective covenants. Potential threat from Phoenix Bank where we had small deposits also led to the loan doubling up to almost $8 million with Caslon without a carefully structured financial program.
To properly restructure our company’s debt, Caslon Trust proposed options that will be beneficial to both and acceptable to Padgett’s management. Initial meetings proved unsuccessful with us refusing to agree to a long term loan through an insurance company financing because of high rates and ‘fancy’ covenants. We don’t have much knowledge of finance so we prefer
Case #3: Padgett Paper Products Company
Almera / Demasu-ay / Libo-on / Olaño / Reboton / Relucio / San Luis
============================================================
Overview
Our company, Padgett Paper Product (PPP) is a closely held publicly listed paper manufacturing company whose ownership remained with the descendants of the founder and whose majority of family members was inactive in company’s management. Major connection of these family members came in the form of quarterly dividends.
The current market is being dominated by large companies, and recent events such as inflation, tax rule changes and drop in the stock market caused smaller firms to sell, opening the business for more consolidation. As a response to the market situation and part of our company’s financing activity, we had borrowed small amounts off and on from Caslon Trust Company of Richmond on a short term 90-day notes for minor acquisitions. We took significantly more debt when the company decided to acquire Tri-State Tablet.
Caslon Trust Company has considered us a valued client and a major contributor to its profitability, as our only lending bank in 1997. The bank also serves as depository of the company’s tax payments. Thus, Caslon has been generous in lending us to the point that it allowed exceeding its credit limit with the rate still continued at a prime and with no protective covenants. Potential threat from Phoenix Bank where we had small deposits also led to the loan doubling up to almost $8 million with Caslon without a carefully structured financial program.
To properly restructure our company’s debt, Caslon Trust proposed options that will be beneficial to both and acceptable to Padgett’s management. Initial meetings proved unsuccessful with us refusing to agree to a long term loan through an insurance company financing because of high rates and ‘fancy’ covenants. We don’t have much knowledge of finance so we prefer