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.
Asset-based growth facility · $25.0M · 85% of receivables / NOLV inventory · S+600 / S+750
At a glance
| Borrower | Founder-owned premium frozen-entrée manufacturer with two plants. Revenue of $68M, heading to a $95M run-rate after a national retail rollout. |
| Facility | $25.0M: an $18.0M revolver plus a $7.0M equipment term loan |
| Collateral | First lien on all assets: receivables, inventory, machinery and equipment |
| Advance rates | 85% of eligible receivables; inventory at the lower of 60% of cost or 85% of net orderly liquidation value (NOLV); the term loan at about 67% of the equipment’s orderly liquidation value (OLV) |
| Term | 36 months |
| Pricing | Revolver S+600 (≈9.75%) plus a 0.50% unused fee; term loan S+750 (≈11.25%); 1.25% origination |
| Timeline | Field exam and appraisals done in 3 weeks; closed day 31 |
The situation
The company won national programs with two big-box and warehouse-club retailers, which will roughly double volume over 18 months. It needed to build inventory ahead of the fourth quarter, pay $2.4M of slotting fees, and add a $6.8M spiral freezer line to double capacity.
Those slotting fees and start-up costs pushed trailing EBITDA from $6.0M down to $4.1M. That broke the bank’s fixed-charge covenant, and the bank capped its revolver at $8M. Growth-equity firms offered capital in exchange for 40% of the company. The founder wanted to keep 100%.
Borrowing base at close
| Collateral | Gross | Advance basis | Availability |
|---|---|---|---|
| Eligible receivables | $11.2M | 85% | $9.52M |
| Finished goods | $9.0M cost (NOLV 62%) | 85% of NOLV | $4.74M |
| Raw materials and packaging | $4.0M cost (NOLV 35%) | 85% of NOLV | $1.19M |
| Less: reserves for retailer deductions and warehouse rent | ($0.95M) | ||
| Net availability | $14.50M |
$10.8M was drawn at close, leaving $3.7M of excess availability.
Sources and uses
| Uses | $M | Sources | $M |
|---|---|---|---|
| Refinance bank revolver | 8.0 | Revolver (drawn) | 10.8 |
| Slotting fees | 2.4 | Equipment term loan | 7.0 |
| Freezer line | 6.8 | ||
| Fees and closing costs | 0.6 | ||
| Total | 17.8 | Total | 17.8 |
Structure
- Full cash control: customers pay into a lockbox we control, and collections reduce the revolver daily.
- Borrowing base reports arrive weekly, and daily during the fourth-quarter peak. Field exams run quarterly in year one, inventory appraisals twice a year and equipment appraisals annually.
- No single customer can exceed 30% of eligible receivables (45% for investment-grade retailers). Credit insurance covers the two largest accounts.
- Retailer deductions and chargebacks ran at 4.5%, above a 3% threshold, so we hold a reserve against them.
- The covenants are $2.5M of minimum excess availability and a 1.0x fixed-charge coverage test that applies only if availability falls below $3.5M. There is no leverage covenant, the covenant that broke the bank deal.
- Caldrion is named on the product-recall insurance and has access agreements with the landlord and the third-party warehouse.
- The term loan amortizes on a 5-year schedule (about $1.4M a year), with the balance due at maturity.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| Customer concentration | Concentration caps; credit insurance; investment-grade customers |
| Deductions eat into receivables | Deduction reserve; tested in field exams |
| Food-safety recall | Recall insurance; certified safety program |
| Commodity costs (beef, cheese) | Quarterly cost pass-through clauses in the retail programs |
| New line has start-up problems | Vendor performance guarantee; availability headroom |
Exit and returns, as underwritten
Once the new line runs at capacity and EBITDA recovers to about $9M, the company refinances into a cheaper bank revolver (around S+200) near month 24, or sells. Target: about an 11% IRR.
Downside
In a liquidation, receivables would collect about $10.1M, inventory at NOLV about $7.0M and equipment at OLV $10.5M: roughly $27.6M against $17.8M outstanding, or 1.55x coverage.
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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.