Merit Marine Corporation

Abstract

With the aid of the bank's capital market division, the lending officer in this case is faced with restructuring a customer's balance sheet to extend the maturity and fix a larger portion of the firm's interest payments. The alternatives include an interest-rate swap and private placements. The objective of the case is to illustrate the lending officer as a merchant banker. Excerpt UVA-F-0678 Version 1.1 Merit Marine Corporation January 1985 started with an opportunity for Ginny Shields, a relationship manager for Omni Bank, N.A., and Jeff Finch, a member of the bank=s corporate-finance department, to expand the bank=s reputation for providing financial advisory services to existing credit customers. Shields, who had moved to Omni Bank=s regional office in Miami two months earlier, had identified the need to restructure the balance sheet (shown in Exhibit 1, with debt components in Exhibit 2) of Merit Marine Corporation, the Florida distributor of Olympus brand marine products. Omni Bank was a large money-center financial institution. Prior to phoning Jeff Finch in New York, Shields had concluded that Merit was in need of long‑term, fixed‑rate financing to reduce the firm=s interest‑rate sensitivity and to better match its funding sources with its level of fixed assets. Merit=s inability to obtain reasonably priced fixed‑rate debt for $ 27 million in capital expenditures incurred between 1980 and 1983 had left the company relying on two‑year, variable‑rate financing. Shields=s conversation with Finch concentrated on the prospects for restructuring Merit=s balance sheet through the use of a private placement and/or an interest‑rate swap. Finch was initially skeptical of the market=s receptiveness to an offering of Merit securities based on the firm=s size and recent performance (see earnings statements in Exhibit 3), yet he agreed to meet with Shields on his upcoming trip to Miami. . . .