Padgett Black Book Company Case

Padgett Blank Book Company

Summary:

Windsor Trust Company of New York has had a long standing relationship with Padgett Blank Book Company since 1939. In 1988 Padgett acquired a long-coveted competitor, Tri-State Tablet, for an attractive price on short notice. This brought Padgett to the bank to ask for an additional $3.6 million loan. Padgett already had $3.6 million outstanding. The company had previously been approved for a $5 million line of credit; however, a new temporary line of $8 had been approved. This would bring Windsor’s exposure to $7.2 million.

Francis Libris, Vice- President of Windsor Trust Company, was responsible for managing and structuring the relationship with Padgett. It was a significant and profitable account. Padgett also maintained a small deposit in the Phoenix Bank of Manhattan. Phoenix had desired a more important role in Padgett’s financials. It was Libris’s job to formulate the structure of the loan before he risked losing the account to Phoenix or an insurance company.

The current arrangements for Padgett’s loans were on a 90-day basis with no protective covenant. Libris and Windsor’s credit department prepared a preliminary financial forecast for Padgett. Assuming Padgett could generate $1 million in undedicated cash each year, Lubris noted that they would still have 4.4 million in short-term debt at the end of 1992. The debt would take a total of 8 years to retire, which was considerably longer than the bank’s typical 5-6 years for a company of Padgett’s size. Libris proposed a 12-15 year loan on terms similar to that of an insurance company; fixed rate with an elaborate set of covenants. The CFO did not agree and the suggestion was turned down. Libris continued to look for ways to structure the loan.

Assumptions:

Padgett Blank Book Company is a manufacturer of a variety of office and home stationery products. This includes notebooks, loose-leaf binders, forms, and filler paper used by students, professionals, and...