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Making Debt an Asset - Seal the deal; A case history.

Oct 29, 2018, 18:36 PM by Mike Ermitage

As dictated by Ralph Waldo Emerson, “Do not go where the path may lead, go instead where there is no path and leave a trail.”

This case history demonstrates how experience, research, intuition and a solid business sense sealed a deal with an atypical solution to a common problem. Unlikely partnerships were formed between a financial services company and two consumer goods companies. This example describes the collaboration between Hilco Receivables, Southern Paper, LLC., and Cenveo,  Inc.

This story begins with the National Envelope Corporation, an envelope manufacturing company founded in 1952 with a meager production output of 200 envelopes per day. By 2000, NEC was the largest privately held envelope manufacturing company in the U.S., producing close to a billion envelopes per day.

In July 2010 NEC filed for Chapter 11 and was acquired by private equity firm Gores Group at auction, outbidding National Envelope’s largest competitor, Cenveo. On June 19, 2011 Gores group won the Atlas Award “Turnaround deal of the year” from the Global M&A Network for the acquisition. The award signified a successful business transaction, but it did not keep the business running.

By 2013 the renamed NE Opco, Inc. was in trouble. In June 2013 it filed for bankruptcy again. Again, Cenveo joined the bidding process for the National Envelope business.

Hilco Receivables was approached by a Cenveo’s investment bank to partner with Cenveo to purchase the assets of National Envelope Corporation. As joint venture partners, Hilco Receivables purchased the accounts receivables of National Envelope, over $40 million face value, while Cenveo purchased the remaining assets of National Envelope.

Hilco Receivables saw an opportunity and used past experience, a team of forward-thinking professionals and the ability to see outside the industry norms. They formed a valuable working partnership with a going concern buyer, facilitating Cenveo’s transaction.

Hilco was vetted very closely. Based on Hilco Receivables’ background in buying trade receivables, ability to back large deals and close quickly, Cenveo trusted Hilco in this important transaction.

“While we were being vetted, our team was moving ahead,” said Hilco Receivables CEO Jay Stone, “We did our research and internally discussed deal structure and pricing. In pricing the portfolio, we utilized results on similar deals as well as we took into account the disruption to the portfolio and collectability after a sale, recognizing that the sale to Cenveo was close to a going concern sale.  We creatively structured the deal so that Cenveo had the liquidity to close, Hilco was secure in buying the assets, and the customer relations were preserved.”

Hilco Receivables was involved from research and pricing to presenting the absent purchase agreement in bankruptcy court. Hilco chose to be involved in the process from start to finish and kept the other players top-of-mind throughout.

It is difficult for banks to lend against fractured portfolios in bankruptcy. Standard asset-based lenders do not typically lend, or if they do - not at the standard rate or with full recourse. Hilco Receivables has the financial means and capabilities to move these deals forward swiftly and effectively.

When looking back on the sealed deal Stone noted, “This National Envelope opportunity had to come together quickly. Sometimes the only way to reach a deal is to seek additional partners. This is a perfect example of how forming unconventional partnerships, and looking at issues from a new perspective, can work.” He continued, “What makes Hilco Receivables the perfect partner in deals like this is our more than 20 years of empirical data regarding the liquidation of trade receivables which allows us to be more aggressive in our bids to purchase trade receivable pools. We have state-of-the-art analytics and the ability to see the deal from the perspective of all parties involved.”

This is a case history in the A&R world because Hilco Receivables is not typically seen as a lender. Taking this approach allowed Hilco Receivables to achieve optimum results. Hilco Receivables blazed its own trail, forged new ideas and left a path for others in the industry to follow.

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