Nearly every business has been affected in some fashion by the abrupt economic downturn, associated job losses, and capital markets volatility. ESOP-owned companies face even greater challenges given broad-based employee ownership requires the company to make an internal market for the company’s equity. For ESOP-owned companies that also offer certain employees synthetic equity plans, these challenges can be further magnified as equity-based capital claims consume an increasingly higher proportion of free cash flow. Other privately owned companies can put equity decisions on hold during periods of economic instability; however, ERISA-based retirement plans allow (by law) plan participants to put their shares to the plan sponsor company.
Many Chartwell clients are seeking to gain an understanding of how prevailing economic and market conditions impact their valuation, repurchase obligation, access to credit, financial covenants, synthetic equity plans, and overall capital structure. What immediate actions can be taken to preserve cash and stabilize your company over the next several months? In this paper we will comment on a few key capital structure issues to help guide your thinking around cash flow planning, capital structure, and balance sheet management.