The L. S. Starrett Company

Abstract

Should Wachovia Bank and Trust lend the ESOP of Starrett the money to purchase shares? The required tasks involve a standard credit analysis and the valuation of Starrett's shares.

Excerpt

UVA-F-0673

THE L. S. STARRETT COMPANY

Introduction

On October 12, 1984, Susan Craig, a lending officer in the New England region for Wachovia Bank and Trust, made a conference call with Jim Cook, a Wachovia national banking loan administration officer, to Douglas R. Starrett, the President of The L.S. Starrett Company. The 90‑minute conversation yielded two lending opportunities for Wachovia. The first was a $ 12 million participation in an $ 18 million loan to Starrett's Employee Stock Ownership Plan (ESOP) for the purchase of treasury stock. The second opportunity was a participation in a $ 15 million revolver/term loan that would insure Starrett's liquidity as the firm planned to repurchase more than the number of shares that would be sold to the trust.

In just one year, Wachovia's relationship with Starrett, a manufacturer of precision hand tools and measuring instruments, had grown from no outstandings to a commitment for a $ 7.5 million industrial revenue bond (IRB) and, now, the possibility of the additional term commitments. Susan was comfortable with Starrett's ability to cover the existing IRB debt, but she was concerned about how the new debt would affect the company's financial position. Of additional concern was how much term debt she was willing to commit to a customer the bank had known for just over one year.

The L.S. Starrett Company

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Keywords: banking, loan evaluation, credit analysis, employee stock ownership, loan evaluation, diverse protagonist, female, valuation, diversity