The Loewen Group inc., headquartered in Burnaby, British Columbia, is the second largest funeral service company in North America. Loewen operated and owned over 1100 funeral houses cross every corner of the world and more than 400 cemeteries in U.S. and Canada. By acquisitions in last twenty years, Loewen has been grown explosively. Just before the time the company went to bankruptcy, the company’s consolidated revenue had grown 30 percent per year, on average, from 303 million to over $1.1 billion. However, Loewen’s financial situation is not as bright as its expansion path. It lost $599 million for 1998, compared to its earning $43 million in the previous year. The company’s aggressive acquisition was mostly financed by debt.
1. How was the Loewen Group able to grow explosively for the first half of the 1990s? What were the advantages of debt financing enjoyed by the firm in this phase. The company could grow explosively in early half of 1990s by aggressive acquisition of small and independent funeral houses, cemeteries and related companies. The advantages of debt financing that Loewe enjoyed at this period were that the company itself can control its business; the interest that the company repay on its loan is tax deductible and lenders do not share profit that the company made.
2. How did loewen get to the position it found itself in 1999? The majority of Loewen’s acquisitions were funded through the use of debt. Their debt ratio has increased consistently over the past 10 years and hit a record high of 81% in 1998. Before 1998 Loewen had been successful at paying their interest on time but in 1998 their times interest earned ratio went below 1 to 0.43, indicating that they will not be able to cover their interest charges. Loewen no longer had sufficient funds to meet the several large interest and principle payments that were due in the following months. 3. Why do you think SCI...