January 1985 started with an opportunity for Ginny Shields, a relationship manager for Omni Bank, N.A., and Jeff Finch, a member of the bank’s corporate-finance department, to expand the bank’s reputation for providing financial advisory services to existing credit customers. Shields, who had moved to Omni Bank’s regional office in Miami two months earlier, had identified the need to restructure the balance sheet (shown in Exhibit 1, with debt components in Exhibit 2) of Merit Marine Corporation, the Florida distributor of Olympus brand marine products. Omni Bank was a large money-center financial institution.
Prior to phoning Jeff Finch in New York, Shields had concluded that Merit was in need of long term, fixed rate financing to reduce the firm’s interest rate sensitivity and to better match its funding sources with its level of fixed assets. Merit’s inability to obtain reasonably priced fixed rate debt for $27 million in capital expenditures incurred between 1980 and 1983 had left the company relying on two year, variable rate financing.
Shields’s conversation with Finch concentrated on the prospects for restructuring Merit’s balance sheet through the use of a private placement and/or an interest rate swap. Finch was initially skeptical of the market’s receptiveness to an offering of Merit securities based on the firm’s size and recent performance (see earnings statements in Exhibit 3), yet he agreed to meet with Shields on his upcoming trip to Miami.