The Loewen Group, Inc

7/17/2019 The Loewen Group, Inc

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1/22/2015 The Loewen Group, Inc. (Abridged)

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The Loewen Group, Inc. (Abridged)

Would you be willing to sell your business to Loewen and receive equity from a distressedfirm?

so s ress cou e a emporary p ase an once e companyis out of distress the equity can generate more value.But in the current scenario Loewen has too much accrued debt,thus the feasibility of cash is low and the equity is a rare scenarioeven for the preferred stock holders, as the company has toomuch debt, in case of bankruptcy the liquidated value will bespend paying the debt and thus equity holders will incur lossesand thus I would not sell my business to a distressed firm.

Why is distress costly? Is this just the capitalized value of legal bills? What are the assetsof the firm that will be damaged or destroyed if the firm becomes distressed?

Distress leads to huge impact on the company image and gives aimmediate push down to the stock prices. Also the distress comeswith a lot of legal and consulting fees which makes it further morecostlier.The assets of the company come under bankruptcy clauses andmight be undervalued by the government.

What is Loewen’s immediate problem?

Loewens immediate problem is long accrued debt, which has ledto decline in the stock rates from 25.75 to 9.44 within a year. Thecompany has been on a spree to grow the business throughacquisitions which had been funded through debts and thus thedebt increased to approx. $2.3 billion by the end of 1998.In this$42 million debt was due in first 2 weeks of April and they did nothave any agreement with the bank on restructuring. Thecompany’s rating has been degraded from B+-B- and to add to the

What are Loewen’s alternatives? What would you recommend to John Lacey? .

company to improve the market image2. Generate cash flows through selling assets and stopacquisitions3. Stop working on pre-need model4. File bankruptcy

Filing bankruptcy is the best option I would suggest to Lacy aswith this amount of debt and prevalent market conditions, this is

Why Loewen might be finding itself in difficulties?





1.High outstanding debt and lack of time to plan2.Conflicting rules in filing bankruptcy due to stakes in both US andCanada3.Difficulties in restructuring due to multiple clauses of asset andbond restructuring covenants with the lenders4. Industry suffering due to decline in death rates

How was the Loewen Group able to grow explosively for the first half of the 1990s? Whatwere advantages of debt financing enjoyed by the firm in this phase?

grew exp os ve y y acqu r ng sma n epen en unera omesand cemeteries in densely populated urban markets.The firm kept on acquiring and increasing its capital by takingdebts and running business in an era when pre need sales offuneral services were representing an increasing share of deathcare business. These funds were invested in either securities orinsurance contract which helped them multiply the capital andhelped them pay the interest on debt and maintain a stable marketimage. Tax shield was another advantage they had becuase of

Would lenders want to lend to a distressed firm?

Financial distress can be perceived as a temporary or permanenteffect to the financial health of a firm. The chance of financialdistress increases when a firm has high fixed costs, illiquid assets,or revenues that are sensitive to economic downturns. Thus a lenderwould like to evaluate the nature of distress of the firm. Lending athigh risk will enable high return, as even in case of bankruptcy, theliquidation of assets will recover the money and if the firm revivesthe lender will have good stakes in the firm.

Whether the economic problems that Loewen faced were commonly felt throughout theindustry?

The economic problems of Loewen are mainly due to the debtaccrued by the company for the acquisitions done by them to growtheir business. The only common factor for the economic problem isthe slowdown in death rates and thus over all slump in the industry.

How did Loewen get to the position it found itself in 1999?

The reasons responsible for the position in 1999 are as follows:1.Declining death rates2.Complex agreement with Blackstone3.Highly accured debt due to spree of acquisitions4.Covenants with the lenders regarding the asset and bondrestructuring5. 10% stakes in Canada and thus problem in filing bankruptcy

Why did Loewen stock trade for $40 when SCI offered $43?





Because jury had a unfavorable verdict in Mississippi,and stockprice depressed, and company had to pay a debt of $500 million,andthus has to trade dor $40.

Loewen as “financially distressed.” Is this a fair description of its problem?

Financial distress is condition where a company cannot meet or hasdifficulty paying off its financial obligations to its creditors. TheLoewen is in a major problem only because of the debt that theyhave. The other problems pertaining to the debt structure and filing ofbankruptcy are only due to company seeking solution to get rid of thedebt.

Is there evidence that Loewen’s distress is costly?

Loewen has all secured debts and are protected by collaterals. Thusin case of bankruptcy all assets will be liquidated and creditors willget the cash from the business. The case in which they wont be ableto pay the debt, the distress will be very costly.

How economic distress and financial distress interact?Economic distress is a situation when an economy is sufferingdownturn and the companies have low revenue due to the slowmarket conditions, if this condition is combined with a companyhaving high debt and thus increase the interest obligation along withlow sales and profit. Thus when the 2 distress interact this furtherimpacts the financial stability of the company

How levered was Loewen?

Total Debt: $2.3 BillionD/E ratio: 1.862Debt Due in next 3 months $4.2milliom

Why did SCI want to pay a premium for Loewen?





Loewen was one of the biggest death care companies and SCIexpected that the further situation of the Loewen to improve andgenerate better cash flows and expected the stock price to improvewhich would have generated profit for SCI

How much higher are acquisition premia in the death care market with Loewen as a rivalrather than without Loewen?

The acquisition revenue increased from 2.02 to 2.65 in three years,which cluld have given a 31.8% boost to the premium received.

What incremental cash flows might SCI expect that could explain this premium?

SCI expected that as Loewen was on acquisition spree and thuswould continue generating demand and revenue in turn, which wouldimprove the cash flows.

Would you want to buy pre-need funeral home services from a distressed firm that mightnot be around to either deliver the services or keep the properties in a high state ofmaintenance?

As the company is perceived to be having low financial s tatus, thusthe general perception would be that due to internal distress theymight not be able to deliver the services. Thus pre need will notmake me choose them due to logical decision making

How much acquisition has SCI done (and is it likely to do)?

It had bought british funeral company, Great Southern for $ 200 mnalso. It wanted to acquire Loewen as it was among one of the fourlargest firm in the death care market.

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The Loewen Group, Inc