SIT­U­A­TION

• An inde­pen­dent spon­sor strate­gi­cal­ly acquired four con­fec­tionary busi­ness­es (the ​“Com­pa­ny”) with­in a span of two years. The spon­sor con­tributed min­i­mum equi­ty at each acqui­si­tion, with financ­ings achieved via sell­er notes, sale-lease­backs, and an ABL cred­it facil­i­ty. The fourth acqui­si­tion (“4^th”), com­plet­ed in Q3 2023, had a sell­er note that would grant 30% of the ful­ly dilut­ed equi­ty of 4^th Com­pa­ny to the sell­er if the note was not paid off with­in one year.
• The 4^th was a crit­i­cal acqui­si­tion as its rev­enues had grown 50% in two years pri­or to acqui­si­tion and rep­re­sent­ed 85% of the Company’s 2023 Pro For­ma EBIT­DA. The 4^th also had 90% cus­tomer con­cen­tra­tion, reduced 45% for the entire Company.
• The spon­sor sought to low­er its cost of cap­i­tal by con­sol­i­dat­ing the sep­a­rate financ­ings and refi­nance the prob­lem­at­ic sell­er note.

OUT­COME

• Chi­ron was retained as the exclu­sive invest­ment banker and suc­cess­ful­ly placed a $42MM, two-tranche recap­i­tal­iza­tion: a com­mer­cial bank pro­vid­ing an ABL facil­i­ty and a struc­tured cap­i­tal provider financ­ing the junior capital.
• The ABL is a $20MM com­mit­ment com­pris­ing: (i) $12MM revolver on the accounts receiv­able (“A/R”) and inven­to­ry (“Inv.”); (ii) $5MM term loan on the machin­ery and equip­ment (“M&E”); and (iii) $3MM cash flow over-advance term loan. Inter­est rates on the three sep­a­rate com­po­nents were 2.5% + SOFR for both the (i) A/R, Inv. and (ii) M&E, and 3.3% + SOFR for the (iii) term loan. Advance rates were 85.0% for the A/R, 85% on the NOLV for Inv., and 80% on the NOLV for M&E. The $3MM term loan amor­tizes over 24 months. Oth­er key terms include a 0.8% clos­ing fee, 0.3% unused line fee and a 1.10x min­i­mum FCCR.
• The junior cap­i­tal provider com­mit­ted to a $22MM term loan facil­i­ty with 8.0% cash inter­est, 10.0% PIK, and no amor­ti­za­tion. Oth­er key terms include war­rants of 2.0%, a 1.30x liq­ui­da­tion pref­er­ence, a 2.5% orig­i­na­tion fee, and total net lever­age ratio of 4.00x.

“Promise Hold­ings select­ed Chi­ron to arrange a $42MM refi­nanc­ing of four sep­a­rate­ly financed port­fo­lio com­pa­nies, each with mul­ti­ple tranch­es of high coupon debt, into a sin­gle Hold­co financ­ing with a dual-tranche struc­ture of bank ABL debt and a struc­tured cred­it sec­ond lien. The end result of the refi­nanc­ing was low­er cap­i­tal costs, greater liq­uid­i­ty and greater flex­i­bil­i­ty to oper­ate these four com­pa­nies. Promise is extreme­ly pleased with this out­come.” — Gor­don Liao, CEO