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KSA Rescues Travel Company From Pandemic

This is a CVA success story driven by 3 of the many vital components of a turnaround:

  1. A determined and smart management team.
  2. The client had excellent MI, supported by an external FD, with up to date accounts.
  3. Creative, turnaround-led insolvency advice from KSA Group.

KSA was initially approached in March 2020 by an established leisure travel company that had sales of £13m just prior to the 2020 pandemic and was seeing a huge fall in orders. The board forecast actual sales might fall to c.£4m during the crisis, if indeed it was shortlived. In 2019 the company had also invested large sums of money into new IT systems from cash resources. This was aimed at streamlining the client booking process, but had depleted the balance sheet of cash. Just at the wrong time.

As the lockdown actually commenced, their new business bookings literally evaporated and the company was being asked to pay thousands of refunds and or issue thousands of credit notes. Over time the company moved from trying to trade out, to actually proposing a CVA. The short lived restart of business in summer 2020 was followed by further lockdowns in November 2020 and January 2021 as we all surely, painfully, remember. This was catastrophic for a travel business.

The key stakeholders were the management, shareholders, ABTA, ATOL, a trade insurance company who would not pay out refunds, landlords of a large property no longer fit for the company’s needs, too many employees (40 of 85 were made redundant), tens of thousands of customers demanding refunds and HMRC. Quite a lot of moving parts, oh, and we were all WFH.

As far as we were aware ABTA had never allowed cover for any business in a CVA before. But the exceptional circumstances and an impeccable compliance track record for the company, meant that it was prepared to listen to our deep-reaching restructuring proposals.

This was groundbreaking CVA work that took months and yet we never physically met with the board! Indeed over 50 online meetings were held over a period of 6 months. We tried TEAMS, GoToMeeting and Zoom, somehow the technology worked and we managed to progress the turnaround plan.

Due to the strong expected future growth and the quality of the management team the CVA proposed a dividend of 100p in the £1 over a period of 4 years to repay almost £7.5m of creditors. It was approved by creditors in September 2020. A modest number were paid refunds, over 4000 received insurance claim payouts and thousands of customers were provided with a delayed product.

The result?

Overall  no customers lost out, which from the outset was the board’s, ABTA’s and ATOL’s objectives. Trade and tax creditors will be paid 100p in £1.

Last year I met the board physically for the first time some 24 months after the initial call! They hadn’t reached the forecast £18m sales in the year post CVA, in fact it was only £6.8m and the company made a “reasonable” loss of £650k. Way off the initial forecasts for sure. But with careful cash management, the business had got through the first 18 months.

By Spring 2022, ironically and painfully, and due to massively rising customer demand, the board were facing ABTA demands to increase the ABTA bond from £1.5m of CASH to £2.5m of cash – this because new business was growing fast and more and more customers booking. Additionally, their insurers hiked premiums. The board wanted to investigate the possibility of turnaround capital with me.

Unfortunately, the debt market for their company which was still in a CVA was virtually negligible. In addition, as it is a consumer-facing business there was no material receivable that could be funded. Turnaround equity would mean an instant dilution of their shareholding to a minority holding, for emergency equity, coupled with debt instruments. This is not unusual for distressed or turnaround capital investors by the way, but the shareholder directors thought it was too little reward for their 20 years of efforts. A number of turnaround capital funders were interested, but most had the same majority stakeholder objectives.

Because they had huge faith in the recovery and turnaround that was under way, the directors unilaterally decided to re-mortgage their homes and in doing so raised substantial new capital. We advised that they secured this loan to the company and a debenture was registered in their names. This capital was duly introduced, and the ABTA bond requirements met, with this new loan and existing cash at bank.

The company is now trading well and has seen record sales of £18m in FY 2022 with pre-tax profits of £1.2m. As such the company is on track to pay all its creditors in full, despite being hit by the largest public health crisis in 100 years.

The key point here was not really about our work, although our experience was important. It is this, without quality management, good quality financial information and a plan, a complex turnaround is unlikely to succeed.

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