Just days before Mid-American Packaging was to close a new deal with the bank, it received word that its natural gas price increase projections were grossly underestimated.
The company immediately knew it soon would be out of compliance with its newly negotiated bank covenants.
“We were hearing from a lot of people, ‘Just go ahead and do it, and you’ll figure it out later,’” says Steve Sneiderman, partner with law firm Hahn, Loeser & Parks LLP. “(They were saying,) ‘It’s still speculative and nobody knows where the prices are going to shake out and you’ll just work with the bank when you get there.’”
Neither Hahn Loeser nor Mid-American felt good about that approach.
“Our client was not comfortable going forward with the information in hand,” Sneiderman says. “He did the right thing and let the bank know that, stopped all the work on the deal and walked away two days before the closing.
“That’s a really hard thing for anybody to do when it’s an important step for your business’ growth, and you have to put that on hold because something that is totally out of your control has come up. That takes a lot of integrity to do that.”
When things settled down about three months later, the company was able to go back to the bank and renew the deal.
“The bank really appreciated it,” Sneiderman says. “The bank told us, ‘You really could have stuck it to us if you’d wanted to.’ Because they understood we treated them properly and like a real partner, they’ve really gone out of their way to make things happen for us in terms of both accommodating new requests, additional borrowing requests, all within their underwriting parameters.”