RECENTLY FUNDED | $18MM Asset-Based Line of Credit for a New England Manufacturer
LOAN CASE STUDY: Speritas Capital Partners advised a 50-year old New England based manufacturing company on the refinancing of an $18MM asset-backed line of credit.
THE SITUATION: A privately held manufacturer that sells proprietary products directly to major retailers was impacted by intense COVID and post COVID stress to their core business.
After breaching covenants with their local bank lender who was unwilling to restructure the loan, this New England based company needed to refinance their asset-backed line of credit quickly with a new lender or face a severe liquidity crisis.
The need to address the situation quickly by identifying and engaging a targeted group of nonbank lenders made this a perfect fit for Speritas Capital given the lending relationships we bring to the table.
Loan Challenges
This is a typical COVID / post COVID distress story.
COVID related raw material cost spikes and extreme supply chain disruptions caused earnings volatility which in turn caused the company to breach its financial covenants with its existing ABL provider, a local bank.
Although the local bank’s original terms were attractive, this lender lacked the credit sophistication and the necessary ‘depth on the bench’ in its operational staff to monitor the collateral and the company’s situation like a true ABL focused lender.
The lesson learned here is that choosing the cheapest money isn’t always the best choice. The lack of sophistication of the local bank actually deepened the company’s troubles. A more experienced, more flexible, ABL lender would have offered more creative support.
This put the manufacturer in a situation where a refinancing was urgently required. Packaging the company’s story and identifying the right lender were the biggest hurdles to overcome quickly.
Structural Challenges
This particular type of business has an inherently challenging business model. Long-term customers order on a weekly or monthly basis, but accurate forecasting is difficult because there are no long term sales contracts.
As a result, earnings are less predictable / more volatile than other businesses, adding to the inherent risk in the business, and making it difficult to finance traditionally.
As a result of the COVID stress, the company decided to take on subordinated debt, increasing the company’s leverage. The high leverage was another factor to deal with in the refinancing.
The stressors - high leverage, earnings volatility and lack of long term contracts - made refinancing with a bank ABL lender virtually impossible. Navigating the nonbank ABL market is very difficult for privately-held, lower middle market companies.
Speritas Capital’s Role
Speritas Capital was brought in because of the need for speed in determining a short list of possible refinancing sources. We quickly assessed the possibility of a bank loan and as expected, found no interest in the bank market and moved on.
Speritas Capital added value throughout the process by carefully targeting and approaching multiple nonbank lenders, quickly identifying the best fit among those nonbank lenders, and establishing a secure deal process, including a robust data room.
We knew we needed a lender with unquestioned interest in working with an established company with good fundamentals. And one that was familiar with the industry…and sophisticated enough to look beyond the short-term COVID stressors.
That’s a lot of challenging ‘ands’!
We moved quickly to closing by aggressively managing the process & the data room - translating the lender’s requests to the borrower and reviewing the borrower’s responses to the lender to ensure that the borrower replied quickly and accurately. We also worked with the company to negotiate the best possible terms for advance rates and interest rates.
Speritas Capital brought speed to the process by knowing which lenders had the expertise to understand this industry and which lenders could handle this kind of high risk underwriting.
In the end, success hinged on our deep lender knowledge and relationships.
ABL questions? Call or text 203-247-4358, send an email, or schedule a call now with Speritas Capital CEO, Jeff Bardos.
About this Asset Backed Loan
There were three parts to this transaction:
Refinancing of the accounts receivable and inventory line of credit
Refinancing of the machinery and equipment term loans
- with an important accommodation for new capital spending. The lender agreed to finance both existing AND new equipment up to a specified limit.
While the initial rate was based on the Secured Overnight Funding Rate (SOFR) + a fixed spread, Speritas Capital negotiated a tiered pricing structure. As the company’s performance improves, the spread over SOFR will decrease based on the trailing 12-month EBITDA reaching specified thresholds.
LOAN DETAILS
Loan Type: Asset-Based Line of Credit
Lender: Alternative ABL Lender
Loan Amount: $18MM
Rate: SOFR + spread
Term: 3 Years
Closed in 90 days
Learn More About the strategic use of Asset Backed Loans
Conclusion – Post Finance Update
With the closing of this $18MM ABL line the company is well positioned for growth with a lending partner who appreciates their business fundamentals, understands their industry and the economic drivers of their business.
Finding creative nonbank options is what Speritas Capital does best.
Speritas Capital was proud to be a critical part of the team that kept a New England based manufacturer – and significant local employer – in business.
Are you looking for a strategic partner to advise you on your next ABL financing challenge?
The Speritas Capital team is always happy to hear your story, learn more about your financing needs and answer your questions. We bring our 30+ years of banking experience and our transparent, strategic approach to every client and every deal, both large and small.
And we never take up front fees.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your ABL financing questions
Schedule a call with Jeff using our online scheduling tool.
More about Jeff
More Recently Funded Deals
Suggested ABL Reading - Grab a beverage & take a seat by the fire or on the deck!
PRESS RELEASE
Speritas Capital Partners Advises on $18 Million Closed ABL Deal
GREENWICH, CT — DECEMBER 16, 2024
Speritas Capital Partners today announced the closing of an $18 million asset-based revolving line of credit for a manufacturer of proprietary storage products.
Speritas Capital was brought in by the client to assess financing options to pay off their current lender and to support substantial growth. The new revolving facility helps position this family-owned business for future expansion.
“Our ability to provide financing options tailored to the company’s specific financial condition and financing needs made a big difference,” says Speritas Capital’s CEO, Jeffrey Bardos. “We worked closely with the executive team to develop a compelling story for potential lenders. COVID and post-COVID logistics issues impacted the company’s financial performance and restricted the previous lender’s interest in supporting growth. Speritas Capital worked with the client and the new lender throughout the process to develop a comprehensive financing package that included accounts receivables, inventory, machinery and equipment.”
“The company was in the early stages of a turnaround when I contacted Speritas Capital,” noted the CEO of the client. “Jeff moved quickly, identifying the right lending partner and he led the refinancing process from start to finish. Jeff has a strong understanding of the ABL market and how to work with lenders for a quick closing. We’re very happy with the support provided and with the outcome.”
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