FINANCIAL SOLUTIONS

 Analyzing a Potential Acquisition

We were asked by a current client to analyze the risk management program of a potential acquisition.  Included in our review of the potential acquisition's insurance program was an evaluation of the company's financial statements.  The target company utilized a loss sensitive program for their Workers' Compensation coverage and the financial statements only listed the dollars already paid for the program's claims.  We pointed out that this practice of not creating a liability for the future estimated costs of their open claims overstated the value of the company.  We reported this finding back to our client who used this key information in their purchase negotiations.

Our client utilized this information in their negotiations and did end up purchasing the entity we reviewed.  However, our discovery led to a savings for our client of over $600,000 in the purchase price.

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A Letter of Credit Solution

Our client was in a joint venture with an operator of hospitality assets.  The partner operated the assets while our client provided the financial backing for the venture.  The partner had large retrospectively rated workers compensation policies.  Initially our client provided letters of credit totalling $3 million to the insurance company to support the retroactive premium exposures of the partner.  Later, our client wanted to dissolve the joint venture.  The open letters of credit were prohibiting dissolution and also constraining our client's working capital capacity.

Cohen-Seltzer conducted a detailed analysis and valuation of the open claims and corresponding liabilities and presented our findings to the insurance company.  We were then able to negotiate a buy out of the outstanding liabilities for approximately $2.2 million with the insurance company.  This eliminated the uncertainty regarding potential adverse development of open workers compensation claims and enabled our client to dissolve the joint venture and greatly improve their working capital.

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A Government Negotiation

Our client was developing a venture that included a large infrastructure project with the opportunity to pass the costs off to the city through a municipal tax bond.  Since the municipality would ultimately be paid back through the generated taxes, the city managers wanted to make sure that in the event that the project was destroyed, it would be properly re-constructed so that the tax revenue would continue.  The city originally imposed insurance requirements that were not only onerous but not insurable.

Through negotiations with the city, we were able to demonstrate how the client's insurance program accomplished what the city was most concerned about, the reconstruction of the housing units which generated the taxes.  The project moved forward and the client received in excess of $5,000,000 of city money to complete the infrastructure.