The Restructuring of Danfurn Llc

10 Pages Posted: 30 May 2017

See all articles by David C. Smith

David C. Smith

University of Virginia - McIntire School of Commerce

Larry G. Halperin

University of Virginia - Darden School of Business

Abstract

"This case is taught at the University of Virginia McIntire School of Commerce in the fourth year course, ""Corporate Restructuring."" The case is suitable for advanced undergraduates or MBS students that have already completed a course in corporate finance or valuation. The material would fit well in a second Corporate Finance class, particularly if the instructor would like to devote some time to discussing financial distress and restructuring. It could also work well in a business reorganization class at a law school. Danfurn LLC is a U.S. manufacturer and retailer of high-end furniture that is in financial distress following a 2007 LBO and subsequent declines in profitability in the wake of the financial crisis of 2007–08. The nearly 50-year-old company has recently blown through cash flow covenants on its $100 million senior financing facility and is seeking a restructuring of its capital structure that will allow the company to survive. Although Danfurn's lenders are hopeful that a consensual decision can be reached on how to restructure the company without resorting to a bankruptcy filing, filing for bankruptcy or even liquidating the company are very real possibilities. This case is an exercise in negotiating a consensual restructuring of a financially distressed company when stakeholders have varied incentives, legal rights, potential remedies, and interests in how the company will be managed going forward. The case discussion works best if students are divided into groups representing the different stakeholder groups—the senior lender, mezzanine lender, board, private equity owner, and founder interests—and are asked to think about how best to maximize their positions while recognizing the costs of failing to reach a negotiated outcome."

Excerpt

UVA-F-1688

Rev. Dec. 13, 2013

The Restructuring of Danfurn LLC

In March 2011, Dan Bruckmuller reviewed the options presented to the board of Danfurn LLC by the company's advisers. Danfurn LLC, a manufacturer and retailer of high-end Scandinavian furniture, had been hit hard by the downturn in the U.S. economy that followed the 2007–08 financial crisis. Over the last two years, sales and operating cash flows had dropped precipitously. The nearly 50-year-old company had recently blown through cash flow covenants on its $ 100 million senior secured financing agreement. M&L Bank, the administrative agent on the loan, had made it clear to the Danfurn board that further waivers to covenant violations would not be forthcoming, ensuring that Danfurn would be in default under the agreement by the end of the month.

While M&L wanted to reach a consensual agreement on how to restructure, Danfurn now faced the threat that the bank would “accelerate” the loan—demanding immediate repayment—or seek some other remedy that would force Danfurn down a path to bankruptcy and perhaps liquidation. As a member of the board, Bruckmuller understood that negotiations over the next few days would be crucial in determining the fate of Danfurn as a going concern.

Company History

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Keywords: negotiation, restructure

Suggested Citation

Smith, David Carl and Halperin, Larry G., The Restructuring of Danfurn Llc. Darden Case No. UVA-F-1688. Available at SSRN: https://ssrn.com/abstract=2974502

David Carl Smith (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Larry G. Halperin

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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