Strong Asset Value Brings Triumph Over Bad Receivables

Large Out of State Road Builder, Concrete Construction General Contractor

Our client was an out of state contractor referred to our office by a contract bond underwriter with 35 years experience who realized the complexity and magnitude of the task at hand. The Contractor had built very strong relationships, completing multiple projects in the mid-seven and eight figure range. The Contractor also maintained a healthy, mid-seven-figure depreciated asset base.

The Contractor was working a $20 million project in the midst of an Energy crisis in 2002. The project owner’s stock fell from $50/share to $0 over the course of the three-year project. The project owners were unable to pay the Contractor. The Contractor’s bank line was lost, and they were unable to recoup well over $2 million in accounts receivable. Their net worth and working capital position were devastated based on CPA GAAP guidelines. In an effort to improve his work in progress schedule, job cost accounting and lower his costs, the Contractor changed CPA firms. However, they were still unable to secure bonding.

The Contractor was in the process of selling a portion of his assets to a major equipment reseller. After a tour of his facility, our Shorewest Underwriting Team recognized the substantial value of his assets. Working with an appraiser, we were able to convince the Contractor of his asset strength. Initially, we bonded the firm with collateral. But as time went on, equity and working capital dramatically improved to the point where the Contractor was before the bad receivable occurred. We released the collateral. The contractor was able to obtain bonds in the mid-seven-figure range.

The patterns of leaving money in the company allowed growth in both working capital and net worth. Within seven years the net worth position and working capital allowed a $50 million bond line.  They are a substantially larger international firm now.

 

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