Case Study - How an On-Site Inventory Inspection Generated a 3,500%+ ROI for a Lender

Overview

Background

A commercial lender held a senior-secured position against the assets of a failed borrower in the consumer durables manufacturing sector. Following default, the lender faced a familiar challenge: assessing the recoverable value of a complex inventory base comprised of finished goods, raw materials, and work-in-process (WIP). The borrower had ceased operations, and no updated reporting had been provided for months. Internal estimates based off a bid from an industry expert pegged recovery from the inventory between $100,000-$125,000.

Rather than pursue immediate disposal, the lender engaged HSL Advisory for a targeted on-site inspection and evaluation, investing under $10,000 in fees.

Challenge

• Inventory was in various stages of completion and scattered throughout a fabrication plant.

• Mix of goods included:

• Finished Goods
• Raw materials
• Work-in-process

• Borrower staff had been terminated; however a former Ops Manager was available to assist with interpretation

Solution

HSL Advisory offered a comprehensive, on-site inspection and evaluation service that combined physical validation, market analysis, and strategic disposition planning.

Step 1: On-Site Inspection and Assessment

• Visual and Manual Validation: Our team conducted a thorough physical audit of all inventory categories, systematically examining each component for condition, completeness, and market viability.

• Expert Analysis: Working alongside the former Operations Manager, we leveraged institutional knowledge to understand the manufacturing process and identify potential value drivers that may not have been apparent in traditional reporting.

Step 2: Strategic Inventory Segmentation

• Four-Category Classification: We segmented inventory into distinct categories based on immediate salability and value potential:

1. Saleable – At Once
2. Saleable – Following minimal labor expense to assemble
3. Salvageable Parts
4. Low-Value WIP inventory

• Hidden Value Identification: Our inspection revealed previously unidentified inventory categories, including obsolete but demand-driven SKUs and specialty components with significant secondary market appeal.

Step 3: Market-Driven Valuation

• Secondary Market Analysis: We identified immediate buyers for raw materials, including scrap dealers and refurbishers who provided real-time quotes during the inspection process.

• Value Optimization Strategy: Our team developed a disposition strategy that maximized recovery by matching inventory categories with appropriate sales channels and buyer profiles.

Results

The comprehensive inspection approach employed by HSL Advisory led to dramatically improved recovery outcomes:

• Enhanced Valuation: Our detailed analysis revealed over $500,000 in recoverable value, significantly exceeding initial estimates of $100,000-$125,000.

• Improved Negotiation Position: Armed with professional valuation data, the lender successfully negotiated a $400,000 sale price with the original bidder.

• Rapid Execution: The entire process was completed within 21 days, allowing for immediate liquidity without extended asset holding costs.

• Exceptional ROI: The $7,500 investment in professional inspection services generated $275,000 in additional recovery value.

Conclusion

This case highlights the strategic importance of professional, on-site inventory inspection in loan recovery scenarios. In distressed asset situations, especially where traditional accounting and reporting have broken down, physical validation and market-driven analysis can uncover significant hidden value. A $7,500 investment generated over $275,000 in additional recovery, demonstrating that effective liquidation begins not with assumptions, but with inspection.

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