Padgett Paper Products
This paper will explore Padgett Paper Products current condition, and move into the
the future condition. We will explore the obstacles that this company needs to
investigate, and further build on it in order to be successful. Padgett Paper wants to
borrow money from current financial institution, and we will also look at the
alternatives available for this company. The objective is to find an acceptable debt
structure that will minimize lender risk, and increase the company value.
Padgett Paper is a closely held public company, which manufactures items such as
stationary, notebooks, file paper. There is also a seasonal demand for their products.
Padgett Paper Company is 100 years old, and the ownership remained primarily
With the descendants of the founders.
Padgett Paper Case Analysis
There seems to be some issues with Management with Padgett Paper.
The Management has a lack of understanding regarding the current structure of the
the business, and knowledge of the firm value. This company has high levels of equity
equity, and is not maximizing the financial possibilities. Management wants to take on
more debt, but the management needs to find a way to have the lender structure the debt.
Diversification is a risk management technique that mixes wide variety of investments
within a portfolio in order to minimize the impact that any one security will have on an
overall performance portfolio. Diversification is the most important component in
helping the company reach long range financial goals while they minimize the risk.
The current structure of the business, and knowledge of the firm value. This
company has high levels of equity, and is not maximizing the financial possibilities.
Management wants to take on more debt, but the management needs to find a way to
have the lender structure the debt. They need to sit down and discuss options that
would be beneficial to the company as a whole. Caslon Trust has been Padgett's
only lending bank and was the only lending bank early 1997. Padget
maintained a small deposit relationship with Phoenix bank, and a major
North Carolina bank. The bank Caslon Trust is currently overextended, and
overall is not in a good situation. Borrowing 8 Million is a very high amount to
ask for. The management of the company does not understand the debt situation
completely. By borrowing this kind of money, would impact Padgett's firm value,
and the upcoming audit report. Padgett has equity, and is not taking advantage of a good financial structure. They are able to take on more debt, but it has to be
structured better. Management needs to focus on new terms. The current long
term fixed rates are too high, and that needs to be negotiated.
Padgett’s current Capital structure is poor; they have too much short debt.
Customers are paying in 90 day terms, and they have a significant level of equity
that is not being maximized. Padgett needs to increase levels of financing to optimize
their debt to equity levels, so they will achieve greater tax shield benefits. They should
reduce their Short term debt of 8M and $5M Long term debt with Calson trust.
Padgett needs to eliminate all Short Term debt, and another proposal would be to
secure $1M Canadian financing and 66% loan to value mortgage on the general
purpose warehouse. The impact of this new capital structure would eliminate the
growing concern, and increase their tax shield value. It would provide the flexibility
to grow, and would decrease risk to bank, and increase their revenue.
Padgett is looking at different alternatives. One alternative is using
property as collateral for a mortgage loan. Using this option does reduce risk
to the bank, but would not be recommended because of the...