TradeCap Partners structured a $4.2 million purchase order facility for a consumer products importer to support seasonal promotional programs with multiple retailers.
This successful company found itself in troubled waters after a decision to expand into a new product line, coupled with two consecutive years of declining sales in a core product line, Declining cash flow and negative net working capital resulted in a default under its asset-based line of credit with a regional bank. The bank restructured the credit facility and termed out the airball created as a result of the reduced receivable and inventory base.
The company secured seasonal promotional programs with two of its largest customers. The programs expanded the SKU count as well as the store count, resulting in larger purchase orders than they had historically received. While this represented a growth opportunity, it also presented challenges.
Terms with suppliers were stretched and cash flow was further constrained by the debt service associated with the term loan supporting the airball. Although the company was meeting increased debt service obligations, covenant defaults remained and the bank had no appetite for extending additional credit to support the seasonal needs. The bank was committed to riding through the difficult times with its client but needed a partner to provide a solution to meet the increased seasonal cash flow needs.
Having worked with TradeCap on a similar engagement with another client, the bank contacted TradeCap for help. TradeCap utilized the previously negotiated intercreditor agreement to carve out the purchase orders related to the seasonal programs and structured letters of credit with two suppliers to support overseas production of the products. TradeCap also provided capacity to support ocean freight, duties, tariffs and inland logistics costs up to the point of delivery to customers.
TradeCap’s solution benefitted both the company and its bank. The company was able to execute on the larger seasonal programs with two key customers, despite cash flow constraints and the default with the bank. The bank was able to provide a solution to its client through its relationship with TradeCap, accelerate repayment of the airball term loan based on profitability of the programs and bring its back in formula under the asset-based line of credit.
