Reloading a Term Loan Five Times to Help a Struggling Client

The Company
This company is a contract developer and manufacturer of cosmetics and skin care for national and international brands. Its clientele includes prestige brands and industry leaders who distribute through major retail, direct and online channels. The company was founded in 1984, sold in 1997 and the founders bought it back as a stock purchase in 2004. The owners subsequently brought in an equity partner who injected $2.5M into the company.

The Situation
The company was in bad shape from a cash flow standpoint. It was hugely under-capitalized and there were significant disagreements between the founders and the equity partner. We came in because we wanted to help this company. There were no guarantors on the deal because the founders were minority stakeholders and the equity partner would not sign a guarantee. The equity partner filed a lien on the company and while he wouldn’t subordinate his debt, he did subordinate his lien.

The Solution
Celtic Capital initially provided a $1.2M A/R Line of Credit and a $1.0M Term Loan on the equipment. The relationship with the equity partner was difficult as he wanted more on the equipment and he wanted an Inventory Line which we did not provide (contamination issues related to cosmetics). The company struggled for years but we worked with management and reloaded the Term Loan at least five times. We made sure the reloading made sense from a collateral standpoint (we didn’t want the company digging itself into a bigger hole) which solved its cash flow issues without impacting an acceptable exposure position.

The Result
The founders hired an industry-related COO who stabilized the company. The COO credits Celtic Capital for assisting her achieve company goals with Term Loan reloads, over-advances and other successful management requests. With the company back on sound financial footing, it has since easily transitioned to bank financing.