Debt Restructuring for a Healthcare Distributor
GCC pharmaceutical and medical equipment distributor
The company distributes pharmaceuticals, medical equipment and consumables under agreements with global manufacturers, and runs turnkey equipment projects for new hospitals. Because the government is the largest healthcare provider and buyer in the country, most of its revenue comes from government departments, whose payment cycles run far longer than those of its suppliers.
Scope of work
Working capital mismatch diagnosed across three sources:
- Government receivables, though fully secured, settled over 270 to 360 days
- Payments to global suppliers fell due in 90 to 120 days
- Short-term bank lines required frequent rollover, pushing the effective cost of funds above documented pricing
Funding mix changed, replacing short-term revolving facilities with stable long-term liabilities in three steps:
- A medium-term loan raised, with part applied to repay existing short-term facilities
- A portion retained to fund payment requirements, with a moratorium giving room to improve collections
- The term facility structured for repayment from cash flow released by a shorter working capital cycle
Business review conducted across receivables, payables, costs and debt liabilities, with a financial model and cash flow waterfall built showing the ability to service the term debt and improve the cycle.
Marketing documents prepared, including an information memorandum covering the business model, the key challenges and the resolution plan.
Lenders approached and terms negotiated, with documentation prepared for the selected lender through to close.
Outcome and value
- Short-term facilities replaced with a stable longer-term structure.
- Cash flow mismatches resolved at source rather than managed through repeated rollovers.
- Effective cost of funds brought back toward documented pricing.
- Breathing room created for management to improve collections.