Octagon Process

Division: Phoenix Management Services


Client

Octagon Process, Inc. (“Octagon" or the “Company”) is a privately-held cold weather aerospace chemical specialist serving airlines and airports around the world with annual revenues of approximately $50,000,000. Headquartered in Edison, New Jersey, Octagon developed an extensive system of manufacturing, storage, distribution and customer service to supply its customers with deicing fluids throughout the world. The Company’s deicing and anti-icing fluids are used by major and small airlines, fixed based operators, airport authorities and the military. Octagon had been supplying the U. S. military since 1952 and was their largest supplier of aircraft wing deicing fluids. The Company received the prestigious gold medalist award for the past four years from the Defense Supply Center Richmond (DSCR), the agency responsible for the military aviation supply chain.

Problem

The Company lost a major customer prior to the deicing season. In addition, there was a multi-million dollar receivable that was deemed to be ineligible by the Company’s lender relating to this customer. With raw material prices 20% higher than the previous year and an inability to pass through these raw material price increases 100% to its customers, the Company was faced with a severe working capital strain and a looming over advance situation with its current asset based lender. Further exacerbating the situation was that the Company was unable to pay down any portion of its accounts payable related to its major supplier, which would have resulted in potentially even higher raw material prices as the Company had to consider alternative sources of supply.

Solution

Phoenix Management Services was engaged to: review the Company’s short term weekly financial forecast for purposes of quantifying the timing and magnitude of the over advance that would be created when the receivable was forecasted to become ineligible due to its aging on the Company’s borrowing base; review Octagon’s business plan and financial forecast with emphasis upon the top 10 customer relationships, each of the existing lines of business, review forecasted working capital availability and review of Octagon’s capital structure. In conjunction with the financial forecast Phoenix provided alternative solutions to the Company which led to greater credibility for the Company’s cash flow forecast with its lender and provided a reporting scorecard template and process for management, which quantified the timing and magnitude of any working capital shortfalls and potential over advance requests of the bank. Working collaboratively with the Company and its bank, Phoenix secured a working capital plan that allowed the Company to weather the short term working capital shortfall and to stabilize its operations for a return to profitability.