Triad Turnaround Group Aims to Help Stores

By Furniture Today Staff — Furniture Today, September 14, 2009

HIGH POINT — Late last year, business consultant Ed Borowsky launched the Triad Turnaround Group, a consulting firm aiming to help struggling furniture retailers avoid bankruptcy and thus break the cycle of disappearing distribution and minuscule debt recoveries by industry suppliers.

Borowsky recently answered questions about the business and what he’s hoping to do in e-mails to Furniture/Today Senior Retail Editor Clint Engel. His responses have been edited.

Q: What is the Triad Turnaround Group all about?

Triad Turnaround Group is dedicated to bringing debtors and creditors together to find a common cause — creating groundbreaking workout plans that allow home furnishings retailers to weather economic storms and place them in a viable go-forward position.

If a restructuring of finances is called for, the principals of Triad have created a system that protects the interests of unsecured creditors by replacing bad debt and lost customers with recovered debt and ongoing accounts. This requires debtors to restructure finances and debt and negotiate long-term settlements to set aside selected debt and give a workout plan the time needed to work. Many retailers are afraid of approaching the trade for assistance because in the past if they indicated that they were in trouble, the credit managers would cut off their credit lines, demand payment up front or force an involuntary bankruptcy. This economic cycle has changed everything. Unless the manufacturers begin working with the retailers, the bloodbath will continue.

Q: Have you had any interest in the program yet? Have you helped any retailers?

We have had tremendous interest in our company. We are currently working with retailers, but due to confidentiality, I cannot disclose their names.

Because the economy is so bad, lenders and landlords are willing to work. We have restructured bank loans, restructured lease arrangements, negotiated better credit card fees, found dramatic insurance savings, created advertising campaigns to build traffic, reworked employee structures, restructured the back end and dramatically reduced warehouse and delivery costs. Just by leveraging the Obama stimulus package alone, we were able to find over $500,000 in cash for one retailer, who did not even know it existed. Many of the retailers we work with say they have cut to the bone. When we come in we find so many creative ways to save that our clients are shocked.

Q: What’s the bigger problem for troubled retailers today — paying suppliers or keeping product in stock?

Both. They go hand in hand. If you cannot pay suppliers, your credit lines are affected and you begin the vicious credit spiral. It all comes down to operating lean and smart and knowing how to generate business in this economy.

Q: Who sits on the Triad Turnaround advisory board and will the members change with each case?

What you are referring to is a new concept that we have developed in instances in which a set-aside is required. In those instances, the unsecured creditors will set aside their debt in its entirety and an advisory board will be established to oversee the process. The membership changes on a case-by-case basis to best suit the interests of the debtors and creditors alike. The commitment of the advisory board is long-term because we report to them frequently with the progress to the go-forward business plan. Not only are they charged with overseeing the recovery but also have the spirit of assisting the company in all matters. Our board members include people like Paul Purcell, who served two terms as president of Furniture Manufacturers Credit Assn…. The credit industry knows our people and will be assured that Triad is looking after the interests of both the retailer and manufacturer.

Q: I can see why retailers would jump at the opportunity to work out their financial problems without heading to bankruptcy court, but I wonder if you’ll face any objections by suppliers who might not be so willing to continue supplying these retailers. Aren’t they worried about the possibility of throwing good money after bad? Isn’t it true that some retailers need to be out of business?

Yes, there are going to be companies that are so far gone or do not have the management structure in place to continue operations. But I have seen many companies that could have survived if they employed the methods we’re discussing. Up until this point, such a program has not existed in our industry.

If we determine, in the analysis phase, that a company is viable, the manufacturers have to understand the go-forward strategy and buy into it. There is a large upside to the creditors in avoiding bankruptcy. In a Chapter 11 liquidation scenario, the unsecured creditors realize a return, on the average, of less than 2% of their debt exposure. Further, they are at the mercy of a non-transparent process once a filing occurs. The court alone dictates returns they may realize on their outstanding debt. The unsecured creditors have little if any say in how the process is carried out.

The retailer, in turn, has little choice but to focus on its debt obligations to secured creditors. In most instances, this mandates the liquidation of assets on hand and the shuttering of operations. Once a filing occurs, legal and administrative fees alone siphon off most of the potential recoveries that all creditors may have realized.

Under a turnaround scenario, a plan is in place, financial conditions are revealed and the trade comes together with the retailer, and the process is open and transparent. If, for some reason, we cannot pull it off, at least the vendors, with the retailer, will collectively make the decision to shutter operations and are no worse off than if the company just closed. In fact, in most cases, the trade will be better prepared.

Certainly, credit professionals have expressed reluctance about extending a line of credit to a struggling retailer. It is understandable, but we believe that our processes and people will ultimately alleviate this reluctance.

Q: Have you had any instances yet involving set-asides and the advisory board?

We have had modified forms of the concept, but not the opportunity to establish the advisory board.

Q: How and when does Triad Turnaround Group get paid?

One of the things we realize is that every scenario differs. The set-aside may not apply in many restructurings and the time and effort is not as demanding as a full-scale long-term plan. We also understand the financial pressures that the companies are under. As a result, we customize a plan that makes sense and structure our fees on a job-by-job basis. We charge for phase one based on an hourly rate with a cap. In phase two, we charge depending on the resources needed to implement the plan. However, in the set-aside plan, the majority of our revenues are based on recoveries to the trade.

Q: How does the trade get repaid?

The formula is quite simple. Attaching a small percentage override on the payment of ongoing invoices compensates the trade. Let me give you one example. Let’s say that we attach a 2.5% override on the company’s ongoing invoices. If new purchases are $10 million, the trade will receive $250,000 as the invoices are paid.

Distributions are spread equally to the unsecured creditors during the course of the year. Under this scenario, the retailer will pledge a percentage of net profits at the end of the year on a cash basis. Based on our pro formas and following the performance of the company, the time period of the payback will be pre-determined.

Making sure the retailer is successful ensures that the trade gets paid. This is at the heart of what we do. What we hope to accomplish is to restore the underlying value of retail businesses and renew relationships between the manufacturer and their retailers. In short, we take bad debt and make it good. By renewing partnerships between the trade and their retail customers, we hope to continue to help limit risk, recover debt and support the home furnishings industry as a whole.

Ed Borowsky

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