100 distress indicators
If you ever face a potencial customer that shows any or many of these bullet points.... watch out!
They are split by the key parameter that drives the indicator
Debt Activity Induced
1. Senior lender with debt exceeding 10% of total funded debt terminates customer’s facility
2. Any senior debt is classified from long term to short term in any given month on the customer financial statements
3. Bond interest payment in excess of 5% of YTD EBIT is missed by customer
4. Working capital lender ceases funding for customer
5. A default against any of the borrower’s financial obligations other than secured debt
6. A breach of any manufacturing contract in excess of 5% or YTD revenues
7. Any non-monetary default under a loan or lease obligation
8. Any monetary default under a customer loan or lease obligation
9. The customer restructures or refinances any of its other debt obligations at the request of its senior lender
10. Any customer with an unscheduled over advance under their revolving line of credit
11. Senior lender representing 10% or more of total funded debt has given the customer any request, whether verbal or in writing, to get refinanced within a one-year timeframe
12. Customer has changed primary senior lender one or more times in the last 24-months
Customer Management Induced
13. CEO immediate family member suffers material personal tragedy
14. Whole management team quits
15. CEO quits
16. CFO quits
17. Top salesman representing 10% or more of annual revenues quits
18. Death of any one member of senior management
19. Regular turnover in senior management
20. Protracted illness (90 days out of work) of key senior management
21. Any break up of partnership
22. Any transfer of ownership
23. New management team brought into the company
24. Company is acquired by national consolidator as stock purchase
25. Company pulls cash out of business to buyback investment of a stockholder
26. Credit report for PG shows judgments within the last 12-months
27. Customer retains any crisis management firm
28. Employee turnover exceeds 10% in the last 12-months
Operating Results Induced
29. A pre-tax financial statement loss in any one month for a customer
30. Charter service looses its 135 certificate
31. Any domestic subsidiary owned 50% or more files BK
32. Any international subsidiary owned 50% or more files BK
33. Failure to file any SEC required statements in a timely manner
34. Any debt forgiveness that exceeds 10% of funded debt thereby generating a taxable event
35. Customer engages and investment firm for sale of 50% or more of its business
36. 10% reduction in freight shipments over a 12 month period
37. A bankruptcy of one of the borrowers competitors
38. A 10% increase in the borrowers raw material costs
39. Any decline exceeding 1% in the borrowers gross margins for two consecutive years
40. Customer has had more than one NSF with GE in the last six-months
41. Any customer that fails to meet 100% of its payroll
42. Loss or bankruptcy of a borrower’s customers whose revenues comprised more that 5% of total revenue
43. The value of the collateral securing the debt has fallen by more than 15% in any given year
44. Work under a given contract representing 20% of company’s revenues comes up for renewal and the company looses the contract
45. Any customer that allows a lapse in insurance coverage on leased equipment
46. Company is involved in leveraged buyout, which results in a substantial negative impact on company’s liquidity and leverage ratios
47. Company purchases future contracts on raw materials in anticipation of increasing costs
48. Company looses market share in excess of 30% due to product reliability issues
49. Loss of major employer in a local market has ripple effect on other businesses serving businesses and consumers in that market
50. EBIT has declined by more than 20% versus the comparable YAG period
51. Customer’s production plant is damaged by fire, natural disaster, etc, decreasing the company’s production output by greater than 10%
52. Equipment financed to customer representing greater than 20% of customer’s product output is recalled by manufacturer
53. A/P days have increased (faster turn) by more than 10% from the previous year’s A/P turnover
54. Inventory days has slowed by more than 20% from the previous year’s inventory turnover
55. Cash burn exceeds 50% of total operating cash flow in any one month during the last six-months
56. Private-company customer pays a dividend to shareholders that exceeds 50% of net income
57. Any customer with multiple facilities and one of the facilities generates net losses exceeding 20% of total company earnings
58. Backlog has declined by more than 20% from the comparable YAG period
59. Insurance costs increased by more than 15% in the last 12-months
60. Any loss of bonding insurance
61. More than one change in accounting firm representation in the last 12-months
62. Company has been unable to negotiate new union contracts that are due within 90 days
63. Customer is publicly-traded and has been de-listed by one of the US stock exchanges within the last 3 months
64. Any credit-rating downgrade, whether by S&P, Fitch or other major rating agency, of more than two levels in the last 12-months
65. Any credit-rating agency downgrade to junk status within the last 12-months
66. Any customer with KMV rating that has declined to CCC+ or less within the last 12-months
67. Equity sponsor refused continued support
68. A strike is initiated by more than 10% of the company’s workforce
69. Customer has greater than 20% of its receivables aged 90-days +
70. Transportation company with more than 10% of their power units sitting idle
71. Transportation company with a 15% increase in brokered freight
72. Technological changes in equipment used effecting 20% of the cost of equipment
73. Technological changes in product manufactured effecting 20% of the cost of equipment
74. Customer increase in aviation fuel prices by 20% within any 60 day period
75. Customer increase in diesel fuel prices by 20% within any 60 day period
76. Customer increase in heating oil prices by 20% within any 60 day period
77. Customer increase in any natural gas prices by 10% in any 60 day period
Trade Vendor Induced
78. Loss of any key supplier representing more than 10% of annual raw material purchases
79. Utility bill remains unpaid for 60 days
80. Sewer and sanitation bill remains unpaid for 60 days
81. Adverse Administrative ruling entered against customer or one of their key suppliers or customers entered resulting in a 15% decline of TNW
Litigation/Judgment/Legal suit Induced
82. Any judgment in excess of 10% of aggregate current assets
83. Any casualty loss exceeding 10% of total assets
84. Any IRS levy event
85. Any IRS lien event
86. Notice of any lien or judgment being filed on the company as a result of a lawsuit against the company
87. Any working capital fraud is perpetrated by management or any operating division of the obligor representing 15% or more of annual revenue base
88. Any criminal indictment of a company officer
89. Adverse Legal judgment against one of their key suppliers or customers
90. Product liability filed against company or against supplier (10%) or purchaser (10%) or which results in cessation of production of product
91. Eminent Domain against customer or one of their key suppliers or customers entered
92. A judgment against the company in excess of 10% of its net worth
93. Unpaid payroll taxes, FICA and Fed Withholding
94. Customer relies on patents that will expire within the next 6-months and such products protected by patents constitute at least 10% of total revenue
95. Customer has been advised by bankruptcy counsel within the last six-months
96. Customer has hired a turnaround consultant within the last 12-months
97. Customer relies on patents that will expire within the next 6-months and such products protected by patents constitute at least 10% of net income
98. Any violation of patent, trademark, or copyright laws where such infringements would result in fines exceeding $100,000
Environmentally Induced
99. Customer environmental damage/contamination with remediation costs exceeding 10% of aggregate current assets
100. Customer is identified as a PRP in any environmental claim
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