Come to think of it, maybe there was: an investment banker whose specialty was secondary financings of small, public companies. Hoping to pick up some underwriting business, its president had solicited Brodsky in CitiPostal's heyday, but back then he, Brodsky, wasn't interested. Now that it was heynight, why not? Brodsky couriered over a package attesting to the immediacy of his needs.
"I took one look at it," the underwriter recalls, "and thought, this is embarrassing. No company can exist with this capital structure. Here I had tried hard to get a piece of CitiPostal's business, and now when I see it up close, it's a basket case." To test his view, he solicited a prominent investor who had put some early money into CitiPostal to advance some additional capital -- maybe an infusion from so prestigious a source would attract others and save the day. The word came back: why give Brodsky any more money?
The underwriter's discreet way of discouraging Brodsky's hope for new financing was to compose "a very tough term sheet" so that Brodsky would have to reject the notion. Among the stipulations was that nonbank debt be restructured. Get them to recap: anyone Brodsky owed had to take stock equity in the company instead. "It can't be done!" Brodsky objected. Well, one way to try, it was suggested, would be for Brodsky to write off his note, interest and all. "You can't go to those people and ask them to convert their preferred position to capital stock while you keep your $6 million on the books."
Responded Brodsky: "Oh, sure, one thing I need is more stock!" And out the door he went in the predicted miff.
A few weeks later, still no solution. Maybe the guy had something after all, Brodsky began to think. As spring approached, CitiPostal's stock was around $3.50 -- down 65% from its high, but not too shabby nonetheless given the pro forma particulars. So Brodsky made the rounds of potential reinvestors. "Listen, things aren't going too well," he confided. "We made a few mistakes, we had a few surprises, some events went against us. But the company is still viable, and we could use $3.5 million of new money. The first $1.5 million we raise, I'll put up 20% of, but we need that $1.5 million right away."
He got the $1.5 million right then, with Brodsky himself not only converting his note into stock, but injecting a fresh $300,000 as pledged. As the stock price slid farther, he quoted freely from the writing on the wall. "The truth of the matter is, I can't pay you cash for the company, so why don't you change the notes to stock." He convinced most of the holders of the April '87 convertible flotation to convert at $2.50 a share, wiping $4.3 million of debt off the books. Even so, it was clear CitiPostal would be broke by the end of the summer. The bank had yet to be replaced, and Brodsky required $2 million more in working capital merely to keep vendors at bay. So back to the underwriter. What other ideas do you have? he asked. Visit everybody again, he was advised. "Go back to the people who have money in the company, and tell them to put more money in the company?" Brodsky was incredulous. "Do you know what it's like to keep going back to your investors? They lose faith in you."
In all, he was able to convert some $15 million worth of soft debt into common stock in about 30 days, a feat that Midas himself would have applauded. It wasn't the same as fresh working capital, but the recapitalization stood to save over $1.2 million a year in interest payments. "At first I was afraid to say, 'Give us the money and accept our terms,' " Brodsky recounts, "until I realized the banks, the SBICs, the wealthy guys, they were more used to it than I was."
With newfound self-assurance, Brodsky contacted his creditors, rather than wait for them to contact -- and scream at -- him. I'm up against it, he confided, and here's how you can help: put aside what we owe you and we'll come back to that in six months. Now, give us credit and we'll pay you that in 60 days. "It's amazing what you can do when you're up front," he learned. "As badly as you want to stay in business, they want you to stay in business more."
A bank that was owed $1 million he asked to accept a lump sum of six months' interest following six months with no payments, then to agree to graduated payments on principal over five years. "This is like being out of work: you learn to survive," he reflected shakily in midsummer. "I'm on a ledge, but I'm probably safe for eight months to a year. Six weeks ago I was desperate. The balance sheet is not too bad now, and it'll look better when I'm done." Actually, the balance sheet showed about $8.1 million in current assets versus about $18.6 million in current liabilities, but Brodsky aimed to coax more of the debt to go long term, putting it below the line and getting the current ratio down to parity. If investors didn't stand up and salute after that, he wasn't going to wait until he ran out of cash. "If I don't see a positive turnaround," he promised, "I'll sell the company piece by piece."
Cash demand kept its pace, so Brodsky kept his word. Within a few weeks, he put two domestic courier units, Boston and San Francisco, on the block, hoping to get more than $1 million for them. Sell, get rid of debt; sell, get rid of debt -- that was the ticket back to New York. "I was taking out around $750,000 a year before this thing; now, I'm giving it back. I didn't anticipate having to go in and buy out the international business. That company was really bleeding. That's where I made the giant error. I should have given [the previous owners] no cash for the business and taken back more notes. It crippled me from a cash-flow standpoint." The irony was that if he had simply put the $5 million he raised into a bank instead of an acquisition, his life security ploy would already have come about. "Maybe after I pay everyone off," he daydreamed, "I'll be left with a nice little business."
