Lender Alerted to $70 Million Exposure and Avoids Involvement with a Borrower Later Convicted of Fraud
Client: Major Lending Institution
Challenge: Determine if Past Appraisal Over-Stated the Value of Assets
Customers frequently ask AccuVal to review previous appraisals and provide industry insight as was the case with a tissue mill that was being sold by a highly-respected global producer to a relative industry newcomer. The appraisal to be reviewed, conducted just two months earlier, estimated the machinery could be sold for $75 million, under duress, on a piecemeal basis, assuming all of the machinery would be removed from the premises (the standard definition of Orderly Liquidation Value). Having extensive experience in the paper industry, AccuVal immediately cautioned the client to question the validity of the past appraisal, and they did. AccuVal was retained to do more due diligence on the client's behalf and provide an independent evaluation.
AccuVal Approach
Following the first day of inspections at the mill, AccuVal confirmed the appraisal reviewed was grossly overstated, indicating that a $5 million conclusion on the machinery was more probable. As a separate matter, we also recommend against lending on the real estate due to its age, special purpose floor plan and limited marketability. After providing this advice, we suggested the client cancel our engagement to save the fees. Acknowledging we had the client's best interests in mind, the lender asked us to finish the engagement so the findings would be appropriately documented. Soon thereafter, AccuVal concluded to the value of $4.8 million. About 45 days later, the machinery plus the real estate and a limited amount of inventory was sold for about $5.5 million – a sale price that validated our value conclusions and our call for caution expressed weeks earlier.
Bottom Line: Lender Receives Timely Advice and Avoids Involvement with a Borrower Later Convicted of Fraud
The lender decided to pass on the transaction avoiding the possibility of a $70 million over advance. A few years later, it was discovered that the acquirer of the mill was conducting business fraudulently resulting in a criminal conviction of the company's chairman and chief executive officer.
The AccuVal AdVantage™
Solid advice. Immediate action. Great instincts. Accurate appraisals. That's The AccuVal AdVantage™ at work.
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