Then CB Vaughan stopped returing Yahn's phone calls. Yahn says he still doesn't understand what went wrong. Vaughan, president of CB Sports, says the deal was just too complex. In any case, the sale fell through, and with it went BRC's last chance to cash out with its hands clean.
Bill Rodgers & Co. was now running on empty. A vicious cycle had set in: as creditors' bills piled up, there were increasing delays in the shipment of fabric and finished goods. The longer stores had to wait to get their goods, the less inclined they were to pay their bills promptly. This, in turn, aggravated the situation with creditors and put the company in a desperate cash bind. It responded by laying off its sales and credit managers, thereby compounding its problems.
By the summer of '86, BRC was down to 10 employees, from a high of 21. It had even stopped paying Rodgers his licensing fee. Nevertheless, says Yahn, it was still receiving plenty of moral support from its four largest suppliers, with whom he managed to negotiate letters of forebearance, and from the bank, which was working hard to get its money back.
"Our third loan officer was Julie Bertinette," he remembers, "and she was very straightforward. We knew where we stood anyway -- you don't get to the 12th floor of the Bank of Boston as a 'valued customer.' Up there, you're not a customer at all -- you're a problem. But Julie said that since our creditors and shareholders were obviously willing to be supportive, the bank should be too."
With few options left, Yahn approached Ody Cormier. Would he consider putting up a new round of financing in exchange for equity in the company? Cormier was interested. He already had an intimate knowledge of the company's manufacturing operations, plus a large chunk of unsecured credit sitting on BRC's books. What he did not have was any real understanding of its debt profile to the Bank of Boston. So he met several times with Bertinette, finally asking the bank to produce a letter spelling out the terms of its lending arrangement with BRC. Meanwhile, he had his own lawyers and accountants evaluate the company's viability. But, all things being equal, Cormier was inclined to do a deal. "There was no question" that a market existed for BR clothes, he says. "BRC had always been first with new products, plus Bill had tremendous name recognition."
Yahn and Bertinette soon had a written agreement designed to accomplish two major objectives. The first was to protect the bank's exposure by reducing both the loan and the overadvance; the second was to provide sufficient cash flow for the company to stay in business while Cormier reorganized it. The bank would advance BRC money (up to a limit of $1.75 million) on the basis of 80% of new sales and 30% of inventory. "When the cash payment was received," noted Yahn in a later memo to the bank, "it was applied to the loan so the loan balance and receivables were reduced by the same amount. Recalculating the formula resulted in 20% of the cash received being available for new borrowing. In other words, we were advanced 80% when the sale was made and received the remaining 20% when the bill was paid. Under this system, we were always being advanced 80% of 60-day receivables."
For its part, the bank required BRC to pay down its overadvance in an orderly fashion, from its current level of $700,000 to zero by February 1988. To meet that requirement, BRC would either have to increase its profitability or decrease its asset base (principally inventory, since it had almost no fixed assets). BRC also had a $395,000 income-tax refund coming in November, $350,000 of which was pledged to the bank. Bertinette monitored the account closely. "Julie said that the plan looked fine," says Yahn, "and that she felt comfortable with it as long as they could check it every month."
Satisfied that a workable accommodation had been reached, Cormier and Yahn signed a purchase-and-sale agreement in late August. In exchange for approximately $300,000 in cash and another $400,000 in trade debt, plus some personal loans and promissory notes to the shareholders, Ody Cormier assumed control of the company. Most of the the cash went to suppliers, as per the letters of forebearance.
During the second half of 1986, everything went pretty much as planned. Although the company ran into delivery problems with its fall line, sales picked up, and by Christmas BRC was breaking even again. And then, one fateful December day, Yahn went up to Bertinette's office to drop off some papers. Her desk was empty.
"What happened to Julie?" Yahn asked one of her co-workers.
"Oh," came the reply, "she left to get married." Yahn's heart sank. "Sit tight," he was told. "We'll let you know who your new loan officer is."
CONFLICTS BETWEEN LENDING OFFICERS and "asset recovery" personnel are not uncommon at banks. Lenders, after all, are in the business of finding new customers and helping them meet their borrowing needs. Loan-review officers, on the other hand, have the often disagreeable task of resolving bad-debt situations.
"You hear a lot of gestapo stories from customers in [bad-loan] situations," says Ann Hartman, who did her own tour of duty in that department, "and some of them are true. Banks do get triggerhappy at times. Particularly when dealing with a clothing company, where the inventory is perceived to have a short shelf life. The mentality becomes, 'Let's sell this crap by the pound.' But it depends on the circumstance."
