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| Borrower | A food processing company in San Antonio, Texas | |
| Loan | A five-year $2.3 million loan at a 15% rate the first year and 18% after that. Three months later we lent them an additional $1.5 million on the same terms. | |
| Collateral | First mortgages on four industrial buildings, a lien on their food processing equipment, a second mortgage on a 6,350 acre ranch and a second mortgage on 420 acres of raw land owned by the CEO. | |
| Guarantors | The loans were personally guaranteed by the CEO , who was the largest shareholder in this closely-held company. | |
| Purpose | Our loan enabled them to pay off their existing mortgages and fund their expansion into commercial consumables. They hoped to expand their annual sales (as little as $6 million in peace time to as much as $30 million) to something consistently higher than $25 million. | |
| Exit strategy | The borrower expected to be able to refinance our loan based on the cash flow from the increased business. | |
| Outcome | Much of the
new business failed to materialize. The borrower defaulted on the loan and filed for Chapter 11. The borrower sold the ranch, and raised money from a sale and leaseback of one of their buildings. Cash from these
transactions paid off interest and about 70% of the principal of our loans. Business from Y2K survivalists
and US forces in Kosovo and other places enabled the borrower to emerge from Chapter 11 with hopes of substantial profits in the next few years.
These hopes proved to be over-optimistic and the company was forced to sell its assets to a competitor in Chapter 7. From the proceeds we
recovered out principal and interest. The borrower was unlucky - the new owner of the assets made out very well from the Afghanistan and Iraq operations. |
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