Case2-Loewen Group-Capital Structure

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REV: MARCH 4, 2002

op yo The Loewen Group, Inc. (Abridged)

In March 1999, John Lacey and the management team at the Loewen Group, Inc., had to decide what course of action to take in light of the company’s imminent financial difficulties. On
January 22, 1999, Lacey, a renowned turnaround specialist, was appointed chairman of Loewen, the second largest death care company in North America. Headquartered in Burnaby, British Columbia,
Loewen owned over 1,100 funeral homes and more than 400 cemeteries in the U.S. and Canada; it also owned 32 funeral homes in the United Kingdom. The company had come a long way since its modest beginnings in Canada, where Ray Loewen, the founder (and, until recently,
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The Loewen Group, Inc. (Abridged)

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Loewen had not yet missed any payments on its debt, and had approximately $30 million of cash on hand. However, this would not be sufficient to meet several large interest and principal payments that were due over the coming months. A payment default would only make negotiations with creditors more difficult, and increase the likelihood of bankruptcy. This possibility would no doubt weigh heavily on the managers’ minds as they turned to the important task of restructuring the company’s debts.

The Death Care Business

op yo The primary activities of death care firms include the provision of funeral, burial, and cremation services, and related products like cemetery plots, caskets, urns, and gravesite markers. Funeral services and cemetery plots can be sold either on an “at-need” basis (i.e., at the time of death), or on a
“prearranged” or “pre-need” basis. In the latter case, payment for a funeral service or cemetery plot is made in advance, and the proceeds are either held in trust or invested in an insurance policy (that names the death care firm as beneficiary).


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