Loewen Group (Abrigated)

The Loewen Group, Inc. (Abrigted)

The Loewen Group Inc. is a death care company who by the end of 1998 was facing an imminent financial distress. The Loewen Group Inc. was the second largest death care company in the US, and had also resources in UK and in Canada. Over the past 5 years, the company had applied an aggressive expansion strategy, by acquiring small independent funeral homes and cemeteries properties, and by acquiring several large established funeral chains, which generated an average growth rate of 30% in its consolidated revenues. However, Loewen’s on-going acquisitions program had been aggressively financed with debt. Furthermore, despite the impressive growth in revenues, the company had high rates of operating costs to support the business and was focusing more on cemetery properties rather than in its more profitable and core business activity, funeral homes. Moreover, the market was facing a downturn, and most of Loewen’s revenues were originated at a “pre-need” basis, which were also limited. The prior factors were affecting Loewen’s normal business operations, disabling it to meet its financial obligations to creditors in future years. See Table 1 for Historical Financial Statements and Calculations, and Table 2 for Cost Drivers affecting Loewen’s Group Inc.

Management wants to know what course of action to take. Table 3 states general assumptions made due to poor historical performance which will allow the company to take action. Three possible scenarios are proposed, where two of them are filing Chapter 11, but with two different outcomes, while the third one is renegotiating with creditors out of court.

Scenario #1: Best Scenario - Restructuring debt without going to court.

Since Loewen is about to get insolvent, and filing Chapter 11 can be detrimental to the company if it wants to continue its operations, the best way to deal with this situation is to renegotiate the company’s contracts with its creditors avoiding court....