A closed Caldrion loan, shown under its project code name. The borrower and sponsor are not named. Terms are as of closing; returns are our underwriting targets, not realized results.
Receivables ABL for a buyout · $18.0M · drawn = 65% of receivables · S+600
At a glance
| Borrower | Federal IT and engineering services contractor; 420 employees; $96M revenue; $8.6M EBITDA; 85% prime contracts with civilian agencies and the Defense Department |
| Transaction | Management buyout of the 71-year-old founder at a $68M enterprise value (7.9x EBITDA) |
| Facility | $18.0M revolver, $14.0M drawn at close |
| Collateral | First lien on all assets, mainly billed and unbilled government receivables |
| Leverage | The drawn amount is 65% of gross receivables; senior leverage is 1.6x EBITDA |
| Term | 36 months |
| Pricing | S+600 (≈9.75%); 0.375% unused fee; 1.25% origination |
The situation
The founder wanted to retire, and the COO, CFO and an independent sponsor wanted to buy the company. Banks offered cash-flow loans with senior leverage caps and covenants that didn’t work with a seller note in the structure. One bank also wanted the deal done as an asset purchase, which would have required novating every federal contract to a new entity, a process that takes months.
Capital structure
| Capital structure | $M | Cumulative leverage |
|---|---|---|
| Caldrion revolver (drawn) | 14.0 | 1.6x |
| Seller note (subordinated) | 16.0 | 3.5x |
| Independent sponsor equity | 26.0 | |
| Management rollover equity | 12.0 | |
| Total | 68.0 |
Borrowing base
| Borrowing base | Gross | Advance | Availability |
|---|---|---|---|
| Billed receivables from federal agencies | $13.8M | 90% | $12.4M |
| Billed receivables as a subcontractor to primes | $2.4M | 85% | $2.0M |
| Unbilled receivables (under 45 days, billable) | $5.5M | 75% | $4.1M |
| Availability | $18.5M, capped at the $18.0M commitment |
Structure
- The deal is a stock purchase, so the contracts stay in the same legal entity and no novation is needed.
- Under the Assignment of Claims Act, formal notices are filed on the largest prime contracts (about 80% of billings), so those agencies pay into our account. Notices on the rest spring in later if needed.
- Payments from prime contractors go to a lockbox we control.
- Under the subordination agreement, the seller note’s interest is paid in cash only while excess availability is above $3M and there is no default. Its principal is blocked until we are repaid, and the seller can’t take enforcement action.
- No single agency or contract can exceed 25% of eligible receivables without approval.
- The covenants are $2.0M of minimum excess availability and a 1.1x fixed-charge coverage test that springs in only if availability tightens. The company reports backlog and recompetes monthly and must keep a DCAA-compliant accounting system.
- A funding-lapse playbook: during a federal shutdown, unbilled receivables stay eligible for 60 days, and availability can be raised temporarily by $2M. A shutdown delays government payment but rarely impairs it, as the fall 2025 shutdown showed.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| A contract is lost at recompete | 72% of revenue is under contracts with options through 2029; the facility shrinks automatically as receivables shrink |
| Shutdowns or slow payment | Availability headroom; shutdown provisions |
| Small-business status changes | The company already competes in full-and-open procurements, so it has no set-aside cliff |
| Contracts can’t be assigned | Assignment of Claims Act filings |
Exit and returns, as underwritten
After 18–24 months of clean performance and a partial paydown of the seller note, a bank refinances the facility at a lower cost, or a larger government-services consolidator buys the company. Target: about a 10.6% IRR.
Downside
If the company loses its largest contract (18% of revenue), receivables shrink by about $4M and availability falls to about $15M, still above the $14M drawn. Because the loan is repaid as receivables collect, it winds itself down, and federal receivables carry very little default risk.
See all our transactions, the twelve loans compared and our criteria.
This case study is provided for information only. It is not an offer of securities or investment advice, and targeted results do not indicate future results.