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El Camino Resources
History
After more than 10 years of success as a technology lessor and systems reseller, El Camino diversified into technology services and expanded into several international markets in the mid-1990s. Moving into technology services was a necessary response to declining margins in the Company’s core new and used computer reseller business units. Extending activities into international markets was consistent with conventional wisdom that El Camino should follow its customers, entering areas where customers were effecting a presence in response to the European Economic Union and the North American Free Trade Agreement.
Between 1994 and 1998, El Camino established operations in the United Kingdom, Germany, Argentina, Brazil, Costa Rica and Mexico. These expansions were strongly endorsed and encouraged by industry analysts, El Camino’s business partners (including IBM) and its lenders (including Sanwa Business Credit, which would later be purchased by Fleet Bank).
The year 2000 was a difficult period for technology solutions providers. El Camino Resources was no exception. Coupled with the Russian credit default, the LTCM hedge fund meltdown, and the dot.com/telecommunications sectors deterioration, solutions providers were burdened with a declining demand for IT and telecommunications equipment, as well as largely unfavorable financial markets. Many once-successful and competitive leasing enterprises failed. During 2000 and 2001, over 40 leasing organizations exited the business, filed for bankruptcy, ceased operations, or were closed by their parent companies.
Nearly contemporaneous with these negative events, El Camino acquired a network services and equipment reseller, Centron Network Services, from GATX Capital. Although the original pro-forma and business plan were cash-flow positive within eight months of the acquisition date (based on the selling of IBM telecommunications equipment in inventory and implementation of an aggressive sales/services strategy), integration of the Centron business was costly and operationally challenging.
Matters were complicated when IBM left the telecom equipment sector business within 60 days of the Centron deal closing, thus eliminating a suite of products that had accounted for the majority of Centron’s sales. This action was taken without any foreknowledge by -- or notice to -- El Camino.
IBM’s exit from the telecommunications market caused an immediate communications products shift from IBM to Cisco and other network equipment producers. The Centron pro-forma plan became of little value, forcing El Camino to immediately refocus the acquired company on non-IBM products and services. Since Centron had been entirely dedicated to IBM, its culture was such that changes could not come easily. Despite this obstacle, El Camino pared the monthly Centron losses in half – from $2 million a month to $1 million. But the drain on cash resources was still significant – particularly when combined with other conditions in the technology and leasing markets.
Acting on El Camino’s voluntary disclosure of its income projections and collateral exposure, El Camino’s lender group (headed by Fleet Bank) conducted a financial audit in October 2000. It revealed possible collateral shortfalls and high loan utilization.
Under ordinary circumstances, the lender group could have allowed El Camino time to resolve its issues. Unfortunately, Fleet Bank and several participants in the lender group, through mergers and other activities, had large exposures to the technology solutions sector and/or Latin America. Through its own acquisitions, Fleet individually and unknowingly had accumulated a $165 million exposure to El Camino. The exposure at Fleet, the less than favorable loan terms for El Camino that Fleet had negotiated for the lender group, and the credit crunch created by the U.S. Federal Reserve, created a lender group that wanted to eliminate its exposure quickly.
Rather than allowing El Camino time, the lender group insisted on the commencement of a loan workout, requiring installation of a third-party workout administrator to liquidate assets to a level that would satisfy lender group balances.
El Camino repaid all monies owed to the group, including outstanding loan balances, interest payments, penalty interest payments, other penalty payments, lender legal fees, lender accounting fees, and workout administrator fees. El Camino, in fact, paid over $200 million to conclude the workout of an outstanding loan balance of approximately $160 million. The majority of the money was realized by the sale of El Camino assets at “distressed” prices. It is important to recognize that, despite these negative conditions and the coinciding of the workout period with a steep economic downturn, El Camino did not seek bankruptcy protection, remained operational, cooperated with lenders, and maintained its historically effective billing and collection activities. During this period, El Camino downsized from over 1,000 employees in 15 countries with over 1,000,000 square feet of leased/owned real estate, to less than 50 key individuals in two countries, with less than 40,000 square feet of office and warehouse space on which to rebuild.
Having emerged from the loan workout with considerable enterprise value, El Camino Resources is committed to recapturing its status as a leading technology solutions provider and financier in the United States and throughout Latin America. El Camino is quickly becoming a leading participant in the information technology solutions market in Mexico, where it projects $75 million in assets by the end of the current 2005 fiscal year.
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