By Tom Nutile, '76
The scene: A high-level meeting in Lithuania to obtain financing for that country's largest company -- the Mazeikiai NAFTA oil refinery.
The characters: A Credit Suisse First Boston official, the chief financial officer of Mazeikiai NAFTA, and international financial expert Adam Greene, a member of the Oberlin College Class of 1986.
Mazeikiai NAFTA, which had been running at 30 percent of capacity or less because it didn't have the capital to buy crude oil, was unprofitable. It needed at least $40 million in working capital to purchase enough crude oil to make a profit. Credit Suisse First Boston was interested in providing financing. Greene and his firm, PRI, based in New York City, were financial advisers to the refinery and were helping broker the deal.
The Credit Suisse First Boston official was explaining the structure of the proposed deal, talking about the different stages of the financing which would involve both bonds and loans. About fifteen minutes into the explanation, the chief financial officer of Mazeikiai NAFTA put her hand up. She wanted to know what the difference was between a loan and a bond. It was a question that could be answered by any United States CFO. But it was a subject that was for-eign to the top financial officer of Lithuania's largest company. There were a few seconds of silence on the part of the westerners. Eventually, Greene explained the difference to the Lithuanian CFO. The deal was closed and, shortly thereafter, Mazeikiai NAFTA was able to operate profitably.
"When you put together a deal like that, you realize that you have very smart people in Eastern Europe, people who are running very complex operations, who have no idea of some of the most basic Western concepts of financing," says Greene. "The chief financial officer did the equivalent of $300- to $400 million a year in business at Mazeikiai NAFTA. But she didn't know the difference between a loan and a bond. It's not because she wasn't smart. Far from it. It's just that she had never had to deal with those concepts before. They just didn't have the tools, from a business standpoint, to close deals like that."
Greene has made a career of helping Eastern European operations learn how to deal with basic capitalist business concepts, operating first out of PRI, and now with a new firm he founded, Dover Tower Capital, also based in New York City. In some recent projects, including obtaining financing for Mazeikiai NAFTA, Greene has worked with Steve Betensky '86, a partner in the New York law firm White & Case.
Together and separately, Greene and Betensky and their firms have helped restructure or obtain financing for companies in, among other places, Lithuania, the Czech Republic, Turkey, Israel, and Russia. The two are, in essence, emissaries for Western-style capitalism. They are also, in a somewhat unusual way, carrying on Oberlin's long tradition of working to bring about social change.
Making capitalism work in the former Soviet Union might not seem, at first glance, to be part of Oberlin's tradition of bringing about progressive social change. As Greene puts it, "Obies are overwhelmingly more likely to see the marketplace as part of the problem, not the solution."
So what does helping the refinery obtain financing and insurance, secure a long-term supply of crude oil, and market its product have to do with progressive social change?
"If the oil refinery, Lithuania's largest employer, were to go belly-up, the negative impact would be felt throughout the country," Greene says. "If, on the other hand, we are successful at making this business efficient and profitable, we'll save -- and create -- jobs, and help to lay the groundwork for Lithuania's prosperity."
Greene and Betensky collaborated in Eastern Europe after a chance encounter at the pair's Oberlin reunion in 1995.
"I ran into Adam at the reunion," says Betensky. "He was talking about the work he'd been doing in Lithuania, about getting people to focus on change and making the world a better place. Before we began talking at the reunion, I had no idea he'd been doing work that was similar to what I had been doing."
Although the pair ended up working together, they arrived at their careers by markedly different routes.
Betensky became involved in Eastern Europe because of his expertise in intellectual property law. Greene went international after spending five years working to revitalize businesses in the Bronx.
Says Betensky, "I kind of fell into this whole area of work. I've been with White & Case since 1989, when I got out of law school at the University of Chicago. I started at White & Case concentrating in intellectual property law: patents, trademarks, copyrights."
As Betensky was launching his legal career, communism was collapsing in Eastern Europe, and White & Case soon found itself doing business there. Betensky got involved when the firm needed an intellectual property lawyer for a case in what was then Czechoslovakia.
"The economic changes had just started," Betensky says. "They had gotten rid of communism but hadn't replaced it with anything yet. The country was passing laws to create a new framework of financial activity where none had existed before." Czechoslovakia, like other Central and Eastern European countries, was looking to its pre-communist law and to modern Western European statutes for models. Betensky became involved in efforts to convert communist business enterprises into market-driven enterprises.
Greene, upon graduation from Oberlin, enrolled in the masters program in urban planning at the Wagner School at New York University. Two years later, he began working as director of commercial and industrial development for the South Bronx Overall Economic Development Corp., the largest private economic development corporation in the state of New York. He gained experience working with small- and medium-sized industrial companies, helping them obtain government grants and retrain workers. In 1994, he used those skills in helping to found PRI and, consequently, to the emerging markets of Eastern Europe.
Says Greene, "When I went over to Eastern Europe, I found the large companies acting like small companies do in the United States. They were trying to find ways to retrain their workers in more modern technology. They were trying to raise capital. They were trying to minimize their tax exposure, for example, and trying to find ways to get insurance. That can be a big problem in Eastern Europe."
Getting insurance -- at a very good rate -- for the Mazeikiai NAFTA oil refinery was the first hurdle. The complex process took more than six months -- roughly the same amount of time it took to secure financing. And it had to be done before the financing was complete, because Credit Suisse First Boston wouldn't do the deal without insurance in place.
"Mazeikiai NAFTA had no insurance and they didn't understand why they needed insurance," Greene recalls. "They said everyone tells us that but we don't understand why. You had to say, 'What's going to happen if tomorrow there's an accident at the refinery and you can't operate for three months? You're not going to earn any income. How are you going to pay your employees? How are you going to pay to fix the problem that's broken? How are you going to pay the principal and interest on the bank loan? That's why you need insurance. You need risk property damage coverage as well as interruption insurance so your people can be paid.' "
PRI had to go offshore to secure insurance, because Mazeikiai NAFTA, valued at $700 to $800 million, was too large an asset to use a Lithuanian insurer. PRI secured insurance at a cost of roughly $1 million a year, less than half the cost estimated by a broker chosen by Mazeikiai NAFTA. The refinery closed on the insurance in July 1996. In November of 1996, the first $19-million portion of the $59 million in financing was received by Mazeikiai NAFTA. The remaining $40 million was funded in February 1997. The loan was refinanced in September 1997 and now totals $90 million.
Today, Mazeikiai NAFTA is operating at 40- to 45-percent capacity and is profitable, thanks to the influx of capital obtained with the help of PRI and White & Case.
"You wind up telling yourself, 'I have to win for these people,' " says Betensky. "You see that it's a company town and you see how many people in the town are employed by the refinery. You realize how many lives are at stake in keeping the refinery operating."