PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP
Banking & Finance One Liberty Plaza, 45th Floor New York, New York 10006
May 3, 2022
MEMORANDUM
I. EXECUTIVE SUMMARY
The purpose of this memorandum is to analyze the "best and final" term sheet delivered by Ridgeline National Bank, N.A. ("Ridgeline" or the "Bank") on April 29, 2022 (the "Best and Final Term Sheet"), in connection with the proposed $40,000,000 asset-based revolving credit facility (the "Proposed Facility" or the "ABL Facility") for Meridian Consumer Brands LLC ("Meridian" or the "Company"). This memorandum sets forth our summary of the key terms, our comparative borrowing base analysis, our assessment of the commercial and legal implications of the two alternatives presented by Ridgeline, and our recommendation regarding Meridian's path forward.
Ridgeline's Best and Final Term Sheet presents two mutually exclusive alternatives:
(a) Alternative A — Commitment Reduction. A reduction of the revolving commitment from $40,000,000 to $35,000,000, with no availability reserve, and all other terms as previously negotiated; or
(b) Alternative B — Availability Reserve. Maintenance of the $40,000,000 revolving commitment, but with the imposition of a $5,000,000 availability reserve, effectively reducing available borrowing capacity to $35,000,000 at all times, with Ridgeline retaining discretion to increase or decrease the availability reserve based on future field examinations and collateral performance.
Under either alternative, Meridian's maximum available borrowing capacity would be reduced from $40,000,000 to $35,000,000 — a reduction of $5,000,000 from the Company's stated working capital requirements. Neither alternative adequately addresses Meridian's seasonal inventory build-out needs, which historically peak in the range of $37,000,000 to $39,000,000 during Q3 and Q4 of each fiscal year.
Calderwood & Harkness's recommendation is that Meridian reject both Alternative A and Alternative B. Neither alternative meets Meridian's working capital requirements, and both are predicated on Ridgeline's application of overly conservative collateral eligibility criteria that are not reflective of industry norms for consumer products borrowers. As discussed in greater detail below, Ridgeline's tightened receivables aging threshold (from >90 days to >60 days past invoice) is non-market for the consumer products sector, and the Bellweather Appraisal Group LLC's exclusion of approximately $12,000,000 in seasonal inventory as ineligible is unduly conservative for a borrower with Meridian's established retail distribution channels and predictable seasonal sales patterns.
This matter has been under active negotiation since January 24, 2022. The Best and Final Term Sheet represents the fourth iteration of term sheet discussions over approximately three months of negotiation, during which Ridgeline's credit committee has demonstrated a consistent unwillingness to move on the core commercial terms at issue. We recommend that Meridian, in coordination with Brindoval Partners Fund III, LP ("Brindoval"), authorize Calderwood & Harkness to communicate the rejection to Ridgeline and make a single, final attempt to negotiate Ridgeline's return to the full $40,000,000 commitment with no availability reserve. In parallel, Meridian and Brindoval should begin evaluating alternative ABL lenders to ensure continuity of the seasonal financing timeline.
II. BACKGROUND AND PROCEDURAL HISTORY
A. The Proposed Facility
Meridian Consumer Brands LLC is a Delaware limited liability company (EIN 84-3291057) headquartered at 401 West 33rd Street, Suite 1200, New York, New York 10001. Meridian operates in the consumer products industry, with principal business lines in personal care and household goods manufacturing, distribution, and retail sale. The Company maintains established distribution relationships with major national and regional retailers across the United States.
Meridian is a portfolio company of Brindoval Partners Fund III, LP, a private equity fund managed by Brindoval Partners. Brindoval acquired Meridian in 2019 at an enterprise value of approximately $210,000,000. Since the acquisition, Meridian has continued to grow its revenue base and expand its distribution footprint. For fiscal year 2021, Meridian reported the following key financial metrics:
• Revenue: approximately $185,000,000
• Adjusted EBITDA: approximately $22,400,000
• Total assets: approximately $142,000,000
The Proposed Facility contemplates a $40,000,000 asset-based revolving credit facility with Ridgeline National Bank, N.A. (200 Tryon Street, Charlotte, North Carolina 28202; Ridgeline Internal Deal ID: ABL-2022-0417) as sole lender and administrative agent. The principal purposes of the ABL Facility are (i) to provide ongoing working capital to support Meridian's day-to-day operations and (ii) to fund seasonal inventory build-outs, which are a critical and recurring component of Meridian's business model given the seasonal demand patterns in the personal care and household goods segments.
The Proposed Facility contemplates a four-year maturity from the closing date. Based on the anticipated closing timeline, which was originally targeted for Q2 2022, the ABL Facility would mature in Q2 2026. The facility would be governed by New York law. Ridgeline would serve as both the sole lender under the facility and the administrative agent.
B. Existing Indebtedness
Meridian's existing capital structure includes a $75,000,000 first lien term loan (the "Greystone Term Loan") with Greystone Capital Finance LLC ("Greystone"), pursuant to that certain First Lien Credit Agreement dated December 15, 2019 (Greystone reference number GCF-MCB-2019-1215). The Greystone Term Loan matures in December 2025. As of January 2022, the outstanding principal balance under the Greystone Term Loan was approximately $61,500,000, reflecting scheduled amortization payments made since closing.
The Greystone Term Loan is secured by a first-priority lien on substantially all of Meridian's assets. Any new ABL facility would therefore require a split-collateral intercreditor agreement between the ABL lender and Greystone. Under the contemplated intercreditor structure, the ABL lender would hold a first-priority lien on all accounts receivable, inventory, deposit accounts, and related proceeds and supporting obligations (the "ABL Priority Collateral"), and a second-priority lien on all other assets of the borrower. Conversely, Greystone would retain its first-priority lien on all assets other than the ABL Priority Collateral and would hold a second-priority lien on the ABL Priority Collateral.
On February 8, 2022, Alan Fitzpatrick, Director, Portfolio Management at Greystone Capital Finance LLC, provided an informal email confirmation of Greystone's willingness to negotiate an intercreditor agreement with the ABL lender on customary split-collateral terms. As of the date of this memorandum, formal intercreditor negotiations have not commenced, as the parties have been awaiting resolution of the term sheet discussions between Meridian and Ridgeline before proceeding to definitive documentation matters, including the intercreditor agreement.
C. Negotiation Timeline
The following is a summary of the key dates and events in the negotiation of the Proposed Facility:
January 24, 2022: Calderwood & Harkness LLP engagement letter executed with Meridian Consumer Brands LLC. Matter opened under Matter No. 1011-00001. Stephanie Okafor designated as relationship partner; Daniel Obi designated as primary associate.
January 28, 2022: Initial term sheet received from Ridgeline via Whitfield Ames LLP, Ridgeline's outside counsel. Whitfield Ames is represented on this matter by Catherine Royce, Partner, and Benjamin Nakamura, Associate, both of the firm's Banking & Finance group. The initial term sheet proposed a $40,000,000 revolving commitment with an 85% advance rate on eligible receivables, a 65% advance rate on net orderly liquidation value ("NOLV") of eligible inventory, a SOFR + 200 basis points interest rate, and other terms generally consistent with market for consumer products ABL transactions.
February 14, 2022: Calderwood & Harkness delivered a marked-up term sheet to Whitfield Ames incorporating Meridian's comments and counter-proposals. Among the principal Borrower comments was a request to increase the inventory advance rate from 65% of NOLV to 75% of NOLV, which Meridian's management team (particularly Ms. Delgado, CFO) viewed as essential to generating sufficient borrowing base capacity to support the full $40,000,000 commitment during peak seasonal periods.
February 28, 2022: Ridgeline responded with a revised term sheet. The Bank rejected Meridian's proposed 75% inventory advance rate and tightened the inventory eligibility criteria. The revised term sheet also introduced additional concentration limits on receivables from Meridian's largest retail customers.
March 7, 2022: Bellweather Appraisal Group LLC ("Bellweather"), an independent appraisal firm retained by Ridgeline, commenced a preliminary field examination of Meridian's inventory and receivables. The field examination was conducted at Meridian's primary distribution center and warehouse facilities. Thomas Varga of Bellweather served as lead appraiser.
March 21, 2022: Bellweather delivered its preliminary appraisal summary to Ridgeline. The appraisal flagged approximately $12,000,000 in seasonal and slow-moving stock-keeping units ("SKUs") as ineligible under Ridgeline's proposed eligibility criteria. The Bellweather report classified these SKUs as exhibiting elevated liquidation risk due to their seasonal nature, notwithstanding the fact that Meridian's business model is inherently seasonal and these SKUs represent core, recurring inventory categories.
March 28, 2022: Ridgeline circulated a further revised term sheet (the "March 28 Revised Term Sheet") reflecting the results of the Bellweather appraisal. The March 28 Revised Term Sheet reduced eligible inventory from approximately $54,000,000 (at cost) to approximately $42,000,000 (at cost) and tightened the receivables aging threshold from >90 days past invoice to >60 days past invoice, further reducing eligible receivables from approximately $38,000,000 to approximately $31,000,000.
April 8, 2022: Calderwood & Harkness delivered a counter-markup of the March 28 Revised Term Sheet to Whitfield Ames, together with a detailed borrowing base analysis memorandum prepared by Daniel Obi. The memorandum demonstrated that Meridian's historical receivables aging data did not support the tightened aging threshold and that the Bellweather exclusions were overly conservative for a consumer products borrower with established retail distribution channels.
April 11, 2022: Daniel Obi transmitted a formal collateral eligibility counter-proposal to Whitfield Ames (Catherine Royce and Benjamin Nakamura), proposing a compromise approach that would retain the 90-day receivables aging threshold while accepting certain (but not all) of the Bellweather inventory exclusions.
April 18, 2022: A multi-party telephonic conference was held among Stephanie Okafor and Daniel Obi (Calderwood & Harkness), Raymond Chu (Meridian), Catherine Royce (Whitfield Ames), and Jonathan Kershaw, Senior Vice President, Asset-Based Lending, Ridgeline National Bank. The call did not produce a resolution. Mr. Kershaw indicated that Ridgeline's credit committee, led by Sandra Petrova, Managing Director, Credit Risk, remained firm on the tightened eligibility criteria as reflected in the March 28 Revised Term Sheet.
April 29, 2022: Ridgeline delivered the Best and Final Term Sheet — the subject of this memorandum. The Best and Final Term Sheet was transmitted via email from Catherine Royce of Whitfield Ames to Stephanie Okafor and Daniel Obi, with a cover note indicating that the enclosed term sheet represented Ridgeline's "best and final offer" and that the Bank was prepared to proceed to definitive documentation on either of the two alternatives set forth therein, but was not in a position to negotiate further on the commitment amount or the collateral eligibility criteria.
III. SUMMARY OF THE "BEST AND FINAL" TERM SHEET
A. Terms Unchanged from Prior Versions
A number of the key economic and structural terms of the Proposed Facility have remained consistent across all four iterations of the term sheet. These terms are summarized below:
Interest Rate. SOFR plus 200 basis points, with a 25 basis point SOFR floor. The interest rate is subject to a step-down to SOFR plus 175 basis points if Meridian's average quarterly availability exceeds 50% of the revolving commitment. Under the original $40,000,000 commitment, this step-down threshold would be $20,000,000 of average quarterly availability. Under a reduced $35,000,000 commitment (as proposed under Alternative A), the threshold would be $17,500,000.
Unused Line Fee. 37.5 basis points per annum, calculated on the daily unused portion of the revolving commitment.
Upfront Fee. 50 basis points of the aggregate revolving commitment, payable at closing. Under the original $40,000,000 commitment, this fee would total $200,000. Under a $35,000,000 commitment (Alternative A), the fee would total $175,000.
Maturity. Four years from the closing date.
Receivables Advance Rate. 85% of eligible accounts receivable. This rate has remained unchanged across all four versions of the term sheet and is consistent with market norms for consumer products ABL facilities.
Inventory Advance Rate. 65% of the NOLV of eligible inventory. This has been Ridgeline's position throughout the negotiation. Meridian's counter-proposal of a 75% advance rate on NOLV was rejected by Ridgeline's credit committee.
Collateral. The ABL lender would hold a first-priority security interest in all accounts receivable, inventory, deposit accounts, and related assets (including proceeds and supporting obligations). The ABL lender would also hold a second-priority security interest in all other assets, subordinate to the existing first-priority lien held by Greystone Capital Finance LLC under the Greystone Term Loan. The collateral arrangements would be governed by a split-collateral intercreditor agreement to be negotiated among Ridgeline, Greystone, and Meridian.
Governing Law. New York.
Lender/Agent. Ridgeline National Bank, N.A. as sole lender and administrative agent.
B. Tightened Eligibility Criteria (Carried Forward from March 28 Revision)
The Best and Final Term Sheet carries forward without modification the tightened collateral eligibility criteria first introduced in the March 28 Revised Term Sheet, which were driven by the results of Bellweather Appraisal Group LLC's preliminary field examination:
Eligible Inventory. Eligible inventory has been reduced from approximately $54,000,000 (at cost) under the original term sheet to approximately $42,000,000 (at cost) under the Best and Final Term Sheet. This reduction of approximately $12,000,000 reflects Bellweather's exclusion of seasonal and slow-moving SKUs that the appraisal firm characterized as presenting elevated liquidation risk. Calderwood & Harkness notes, as discussed further in Section VII below, that the classification of seasonal inventory as ineligible is overly conservative for a consumer products borrower with Meridian's established retail distribution channels and predictable seasonal demand patterns.
Receivables Aging Threshold. The threshold for receivables ineligibility has been tightened from receivables aged greater than 90 days past invoice to receivables aged greater than 60 days past invoice. This tightening reduces eligible receivables from approximately $38,000,000 to approximately $31,000,000. As discussed in Section VII.C below, a 60-day aging threshold is aggressive and non-market for the consumer products sector, where 60-to-90-day payment cycles are standard with major retail customers.
C. The Two "Best and Final" Alternatives
The core of the Best and Final Term Sheet is the presentation of two mutually exclusive alternatives, each of which would result in a $5,000,000 reduction in Meridian's maximum available borrowing capacity:
Alternative A — Commitment Reduction. Under Alternative A, the revolving commitment would be reduced from $40,000,000 to $35,000,000. No availability reserve would be imposed. All other terms — including the pricing, maturity, advance rates, and tightened eligibility criteria — would remain as stated in the Best and Final Term Sheet. Alternative A represents a straightforward reduction in the size of the facility. The Company's maximum borrowing capacity would be capped at $35,000,000 regardless of the borrowing base calculation.
Alternative B — Availability Reserve. Under Alternative B, the revolving commitment would remain at $40,000,000, but Ridgeline would impose a $5,000,000 availability reserve that would reduce the Company's available borrowing capacity to $35,000,000 at all times. The availability reserve would be deducted from the borrowing base before calculating available credit. Critically, Ridgeline would retain sole discretion to increase or decrease the availability reserve based on future field examinations and collateral performance. No cap on the potential increase of the availability reserve is specified in the Best and Final Term Sheet.
Both alternatives yield an identical result in terms of initial maximum available borrowing capacity: $35,000,000. However, Alternative B introduces a significant additional risk factor, namely, Ridgeline's discretionary ability to increase the availability reserve, potentially further reducing Meridian's borrowing capacity below $35,000,000 without any negotiated limit or consent right. This discretionary element is discussed in detail in Section VI below.
IV. BORROWING BASE ANALYSIS — COMPARISON TABLE
To provide the recipients of this memorandum with a clear quantitative framework for evaluating the impact of Ridgeline's tightened eligibility criteria and the two Best and Final alternatives, we have prepared the following comparative borrowing base analysis. The analysis presents the borrowing base calculations under three scenarios: (A) the original term sheet dated January 28, 2022; (B) the revised eligibility criteria introduced in the March 28 Revised Term Sheet and carried forward into the Best and Final Term Sheet; and (C) Meridian's counter-proposal, which was not accepted by Ridgeline.
A. Original Borrowing Base (Initial Term Sheet, January 28, 2022)
Under the original term sheet, the borrowing base was calculated as follows:
• Eligible receivables: $38,000,000 × 85% advance rate = $32,300,000
• Eligible inventory at cost: $54,000,000
• NOLV (estimated at 70% of cost): $37,800,000
• Inventory advance (65% of NOLV): $24,570,000
• Total borrowing base: $32,300,000 + $24,570,000 = $56,870,000
• Excess over $40,000,000 commitment: $16,870,000 (approximately 42.2% cushion)
The original borrowing base provided substantial excess availability over the proposed $40,000,000 commitment, affording the Bank a comfortable cushion of approximately 42.2%. This level of excess availability is well above market norms for consumer products ABL facilities and reflects the strength of Meridian's underlying collateral.
B. Revised Borrowing Base (March 28, 2022 Revised Term Sheet / Carried into "Best and Final")
Following the Bellweather appraisal and the tightening of receivables aging criteria, the borrowing base was significantly reduced:
• Eligible receivables: $31,000,000 × 85% advance rate = $26,350,000
• Eligible inventory at cost: $42,000,000
• NOLV (estimated at 70% of cost): $29,400,000
• Inventory advance (65% of NOLV): $19,110,000
• Total borrowing base: $26,350,000 + $19,110,000 = $45,460,000
• Excess over $40,000,000 commitment: $5,460,000 (approximately 13.7% cushion)
• Excess over $35,000,000 (under either Alternative A or Alternative B): $10,460,000 (approximately 29.9% cushion)
The revised borrowing base of $45,460,000 still supports a $40,000,000 commitment, albeit with a thinner excess availability cushion of approximately 13.7%. As discussed in Section VII.B below, a 13.7% excess availability cushion, while tighter than the original calculation, is within market range for consumer products ABL facilities.
C. Meridian's Counter-Proposal (Not Accepted)
Meridian's counter-proposal, which sought to restore the 90-day receivables aging threshold and increase the inventory advance rate to 75% of NOLV, would have yielded the following borrowing base:
• Eligible receivables (90-day aging threshold): $38,000,000 × 85% = $32,300,000
• Eligible inventory at cost: $54,000,000
• NOLV (estimated at 70% of cost): $37,800,000
• Inventory advance (75% of NOLV): $28,350,000
• Total borrowing base: $32,300,000 + $28,350,000 = $60,650,000
• Excess over $40,000,000 commitment: $20,650,000 (approximately 51.6% cushion)
D. Comparison Table
The following table summarizes the borrowing base calculations across the three scenarios:
As the comparison table demonstrates, the reduction in the borrowing base from $56,870,000 to $45,460,000 is driven entirely by Ridgeline's tightened eligibility criteria — not by any deterioration in Meridian's underlying collateral quality. Even under Ridgeline's tightened criteria, the borrowing base exceeds the $40,000,000 commitment by $5,460,000, providing a reasonable, if thin, excess availability cushion.
V. ANALYSIS OF ALTERNATIVE A — COMMITMENT REDUCTION TO $35,000,000
A. Impact on Working Capital and Seasonal Needs
Meridian's stated need for the full $40,000,000 revolving commitment is driven by the Company's seasonal business cycle. As a consumer products company operating in the personal care and household goods segments, Meridian experiences significant seasonal inventory build-outs in Q3 and Q4 of each fiscal year, driven by back-to-school demand (July through September) and holiday season demand (October through December). These seasonal patterns are well-established, predictable, and represent a core feature of Meridian's business model rather than an indication of operational volatility.
Based on historical data provided by Patricia Delgado, CFO, Meridian's peak seasonal borrowing need during fiscal year 2021 ranged from approximately $37,000,000 to $39,000,000 during Q3, with borrowings declining to approximately $20,000,000 in Q1 of the following year. This seasonal pattern has been consistent over the three fiscal years since Brindoval's acquisition in 2019.
A revolving commitment of $35,000,000 would create a shortfall of $2,000,000 to $4,000,000 during peak seasonal months. This shortfall would have significant operational consequences:
(i) Meridian would be required to curtail inventory purchases during the critical seasonal build-out period, risking inability to fulfill purchase orders from major retail customers. Failure to fulfill orders within contractually specified delivery windows could trigger penalties, including chargebacks, shelf-space reductions, and, in extreme cases, loss of distribution placements with key retail partners.
(ii) Alternatively, Meridian would need to seek bridge or supplemental financing from alternative sources during peak season, which would likely be available only at significantly higher cost (if available at all on an expedited basis) and would add complexity to the Company's capital structure.
(iii) The seasonal working capital gap cannot be filled by the existing Greystone Term Loan, which is a fully drawn term facility with no revolving component. The Greystone Term Loan's terms do not contemplate incremental availability for seasonal draws.
B. Economic Implications
The direct economic implications of a commitment reduction to $35,000,000 under Alternative A are as follows:
Reduced Upfront Fee. The upfront fee at closing would be $35,000,000 × 0.50% = $175,000, compared to $200,000 under a $40,000,000 commitment. The marginal savings of $25,000 is immaterial in the context of this transaction.
Reduced Unused Line Fee Base. During off-peak periods (Q1 and Q2), when Meridian's outstanding borrowings are lower, the unused portion of the facility — and therefore the unused line fee — would be calculated on a smaller base. However, the cost savings associated with reduced unused fees during off-peak periods are immaterial relative to the value of the $5,000,000 in availability that Meridian would forfeit during peak season.
Interest Rate Step-Down Threshold. Under a $35,000,000 commitment, the step-down threshold for the interest rate reduction from SOFR + 200 bps to SOFR + 175 bps would be 50% of $35,000,000 = $17,500,000 of average quarterly availability, compared to $20,000,000 under a $40,000,000 commitment. While this lower threshold is marginally easier to achieve, the 25 basis point interest rate benefit does not compensate for the loss of $5,000,000 in peak-season borrowing capacity.
In sum, the economic savings associated with a reduced commitment under Alternative A are negligible and do not offset the operational and financial risks of insufficient seasonal borrowing capacity.
C. Signaling to Market and Sponsor Considerations
Beyond the direct financial implications, a reduced commitment may carry adverse signaling effects. A reduction from a $40,000,000 to a $35,000,000 revolving credit facility could be perceived by trade creditors, suppliers, and other stakeholders as an indication of borrower weakness or lender concern about credit quality. While Meridian is not required to publicly disclose the terms of its ABL facility, key trade counterparties and suppliers may become aware of the facility size through commercial dealings, and a smaller-than-expected facility could undermine confidence in Meridian's financial stability and purchasing power.
From a sponsor perspective, Brindoval Partners Fund III, LP views the full $40,000,000 commitment as essential to Meridian's operational plan and growth trajectory. Evelyn Crumveth, Managing Partner at Brindoval, has communicated to Calderwood & Harkness that Brindoval does not support a commitment reduction and considers the full $40,000,000 to be a minimum threshold for the ABL Facility.
VI. ANALYSIS OF ALTERNATIVE B — $5,000,000 AVAILABILITY RESERVE
A. Functional Equivalence to Commitment Reduction
At the outset, it is important to recognize that Alternative B is, at the point of closing, functionally equivalent to Alternative A in terms of its impact on Meridian's available borrowing capacity. Both alternatives cap maximum availability at $35,000,000. Under Alternative B, the borrowing base certificate would show available credit calculated as the lesser of (a) the borrowing base and (b) the $40,000,000 commitment, minus the $5,000,000 availability reserve. The net result is the same as a $35,000,000 commitment: Meridian would have access to no more than $35,000,000 in revolving credit at any given time, regardless of borrowing base capacity.
As a practical matter, the difference between the two alternatives is one of form rather than substance at closing. However, the two alternatives diverge significantly in terms of post-closing risk, as discussed below.
B. Additional Risks of the Availability Reserve Approach
Alternative B introduces several significant risks that are not present under Alternative A:
(i) Discretionary Adjustment. Ridgeline's Best and Final Term Sheet provides that the availability reserve would be subject to the Bank's discretion to increase or decrease based on future field examinations and collateral performance. Critically, no cap on the potential increase of the availability reserve is specified. This means that Ridgeline could, at its sole discretion and based on the results of periodic field examinations, increase the availability reserve above $5,000,000, further reducing Meridian's available borrowing capacity below $35,000,000. This discretionary element introduces a level of ongoing uncertainty that is fundamentally incompatible with Meridian's need for reliable, predictable access to working capital financing.
(ii) Forecasting and Planning Risk. Meridian's seasonal inventory build-out requires advance planning and commitment of capital to purchase orders with suppliers and manufacturers. If the availability reserve is subject to unilateral lender adjustment, Meridian cannot reliably forecast its available borrowing capacity in the months leading up to the critical Q3 and Q4 peak seasons. This planning uncertainty could force Meridian to maintain higher-than-necessary cash balances as a buffer, reducing the efficiency of the Company's capital deployment.
(iii) De Facto Repricing and Disciplinary Mechanism. Availability reserves of this nature often function in practice as a de facto repricing mechanism or disciplinary tool. Lenders may use the threat of increasing the availability reserve to extract concessions from borrowers on other terms or to force early paydowns of the facility. Ridgeline's retention of discretionary reserve authority creates an asymmetric power dynamic that would persist throughout the four-year term of the facility.
(iv) Incremental Field Examination Costs. The exercise of the Bank's discretionary reserve authority would likely be tied to periodic field examinations conducted by Bellweather Appraisal Group or a similar firm. Each field examination entails costs of approximately $25,000 to $50,000 (based on market norms for ABL field examinations), which are typically borne by the borrower. If Ridgeline conducts field examinations more frequently in connection with its reserve monitoring obligations, Meridian would bear increased examination costs.
C. Precedent Concern
Acceptance of a discretionary availability reserve at the term sheet stage would set an unfavorable precedent for the definitive documentation negotiations that would follow. If Meridian were to proceed to negotiate a credit agreement based on Alternative B, Ridgeline's counsel (Whitfield Ames LLP) would be expected to seek broad and largely unrestricted discretion in the credit agreement to impose additional reserves. Term sheet concessions on reserve authority are exceedingly difficult to claw back in the definitive documentation phase, as lender's counsel will argue that the borrower accepted the principle at the term sheet stage and that the credit agreement is merely implementing that principle.
In Calderwood & Harkness's experience, the definitive credit agreement for an ABL facility with a discretionary availability reserve typically includes provisions granting the lender authority to impose reserves for a wide range of purposes, including (but not limited to) environmental reserves, dilution reserves, rent reserves (for landlord waivers not yet obtained), insurance reserves, and reserves for tax or regulatory liabilities. Once the borrower has accepted the principle of discretionary reserves at the term sheet level, it becomes significantly more difficult to negotiate meaningful limitations on the lender's reserve authority in the credit agreement.
For these reasons, Alternative B is, in Calderwood & Harkness's assessment, the less favorable of the two alternatives — not only does it produce the same immediate result as Alternative A (a $35,000,000 cap on available borrowing capacity), but it also introduces ongoing uncertainty and downside risk that Alternative A does not.
VII. REASONS FOR RECOMMENDED REJECTION
Calderwood & Harkness recommends that Meridian reject both Alternative A and Alternative B for the reasons set forth below.
A. Mismatch with Meridian's Business Needs
The fundamental deficiency of both alternatives is that they fail to provide Meridian with the revolving commitment necessary to fund its seasonal working capital requirements. Meridian's historical peak seasonal borrowing need — consistently in the range of $37,000,000 to $39,000,000 during Q3 — cannot be met with a facility that caps available borrowing capacity at $35,000,000. The resulting shortfall of $2,000,000 to $4,000,000 during peak months would require Meridian to either curtail inventory purchases (with the attendant risks of lost sales, retailer penalties, and competitive displacement) or seek alternative financing at likely higher cost and on less favorable terms.
The existing Greystone Term Loan, with an outstanding balance of approximately $61,500,000, is a term facility with no revolving component. It cannot serve as a source of seasonal working capital flexibility. The Greystone Term Loan's terms do not permit incremental advances or revolving draws, and the facility is subject to its own set of financial covenants that would not accommodate additional leverage.
Meridian's fiscal year 2021 financial performance — EBITDA of approximately $22,400,000 on revenue of approximately $185,000,000 — demonstrates the Company's reliance on adequate working capital facilities to support its operations and maintain its margins. The 12.1% EBITDA margin achieved in FY2021 is reflective of a well-managed consumer products business, but that margin is predicated on Meridian's ability to make timely and adequate inventory investments during peak seasons. Any shortfall in seasonal financing capacity would directly threaten Meridian's ability to maintain its revenue base and margin profile.
B. Collateral Supports the Full Commitment
Even under Ridgeline's tightened eligibility criteria, the revised borrowing base of $45,460,000 supports a $40,000,000 commitment with $5,460,000 of excess availability, representing a cushion of approximately 13.7%. While this excess availability cushion is thinner than the 42.2% cushion under the original term sheet, it is within market range for consumer products ABL facilities.
Calderwood & Harkness's experience across numerous ABL transactions in the consumer products sector indicates that excess availability cushions in the range of 10% to 15% are common and generally acceptable to both borrowers and lenders. A 13.7% cushion provides adequate protection against short-term fluctuations in collateral values while still enabling the borrower to access the full revolving commitment. There is no sound credit basis for reducing the commitment below the level supported by the borrowing base.
Moreover, the Bellweather Appraisal Group's exclusion of approximately $12,000,000 in seasonal SKUs as ineligible is overly conservative for a consumer products borrower with Meridian's profile. Seasonal inventory is a core, predictable component of Meridian's business model. The personal care and household goods products that constitute the excluded SKUs are not obsolete, damaged, or at risk of significant value deterioration — they are standard seasonal product lines with established retail demand, predictable sell-through rates, and well-documented historical performance. The application of a blanket ineligibility determination to seasonal inventory of this nature does not reflect the realities of the consumer products industry.
C. Ridgeline's Receivables Aging Threshold Is Non-Market
The tightening of the receivables aging threshold from >90 days past invoice to >60 days past invoice is, in Calderwood & Harkness's assessment, aggressive and not reflective of market norms for the consumer products sector.
Consumer products companies that sell through major retail channels routinely experience payment cycles of 60 to 90 days from invoice. Large retailers — including national grocery chains, mass merchandisers, and drug store chains — typically operate on payment terms of 30 to 60 days, but actual payment often occurs within 60 to 90 days of invoice due to standard industry practices including deduction processing, promotional allowance reconciliation, and seasonal payment cycle extensions. A >60-day aging threshold effectively treats a significant portion of Meridian's perfectly performing receivables as ineligible collateral.
Meridian's historical receivables aging data, which was provided to Ridgeline and Bellweather during the due diligence process, demonstrates that receivables aged 61 to 90 days represent approximately $7,000,000 and have a historical loss rate below 1%. These are not distressed or doubtful receivables — they are performing receivables from creditworthy retail counterparties that are in the normal course of payment within industry-standard timeframes.
Restoring the 90-day aging threshold would increase eligible receivables from $31,000,000 to $38,000,000, which in turn would increase the receivables component of the borrowing base from $26,350,000 to $32,300,000 — an increase of $5,950,000. This single adjustment would increase the total borrowing base from $45,460,000 to approximately $51,410,000, producing excess availability of $11,410,000 over a $40,000,000 commitment (approximately 28.5% cushion) and effectively mooting the asserted need for any commitment reduction or availability reserve.
D. Negotiation Dynamics
The trajectory of the negotiations with Ridgeline over the past three months provides important context for our recommendation. Ridgeline's credit committee, under the direction of Sandra Petrova, Managing Director, Credit Risk, has demonstrated a consistent unwillingness to move on the core commercial terms at issue — specifically, the inventory eligibility criteria and the receivables aging threshold — despite substantive and well-supported counter-proposals from Meridian.
The following pattern is notable:
• The February 28 revised term sheet tightened inventory eligibility without engaging with Meridian's counter-arguments.
• The March 28 Revised Term Sheet further tightened the receivables aging threshold based on the Bellweather appraisal, without meaningful dialogue with Meridian regarding the appropriateness of the Bellweather exclusions.
• Calderwood & Harkness's April 8 counter-markup and detailed borrowing base analysis memorandum were not substantively engaged by Ridgeline.
• The April 18 multi-party call produced no movement from Ridgeline's position.
• The Best and Final Term Sheet, delivered April 29, does not address any of Meridian's substantive objections and instead offers only the choice between two alternatives that both reduce availability by $5,000,000.
The "best and final" label itself signals Ridgeline's unwillingness to negotiate further on these core commercial terms. While it is possible that a strong, clearly articulated rejection and final counter-proposal could prompt additional engagement from the Bank, Calderwood & Harkness's assessment, based on the dynamics observed over the course of the negotiation, is that the probability of meaningful movement by Ridgeline is low.
Continued negotiation with Ridgeline on the existing terms carries significant opportunity cost. As Q3 approaches, Meridian's seasonal inventory build-out needs become more acute, and the timeline for establishing an alternative ABL facility becomes tighter. Each additional week spent in fruitless negotiation with Ridgeline reduces the available runway for Meridian to engage with alternative lenders and close a facility before the seasonal financing window opens.
VIII. DISCUSSION OF ALTERNATIVE LENDER OPTIONS
A. Market Landscape
The ABL lending market for consumer products borrowers of Meridian's size and profile is competitive and well-established. Meridian's financial characteristics — revenue of approximately $185,000,000, total assets of approximately $142,000,000, EBITDA of approximately $22,400,000, and a strong collateral base consisting of accounts receivable and inventory from established retail distribution channels — are attractive to a broad range of ABL lenders.
The current ABL market includes multiple potential counterparties, including:
• National and super-regional bank ABL platforms — Institutions such as Hollowell Partners LLC, Stonefield Partners LLC, Penmark & Co., Penmark Industries, and Marlowe Capital Markets maintain active ABL lending groups that regularly extend $25,000,000 to $75,000,000 revolving credit facilities to consumer products borrowers. These platforms generally apply standard market eligibility criteria and are familiar with the seasonal dynamics of consumer products businesses.
• Non-bank ABL lenders — Specialized non-bank ABL platforms such as Northgate Partners LLC, Tidewater & Co., and Siena Lending Group offer ABL facilities that may feature less conservative eligibility criteria than those applied by traditional bank lenders. Non-bank ABL lenders typically price their facilities at wider spreads — estimated at SOFR plus 250 to 300 basis points for a borrower with Meridian's credit profile — but may be willing to accept broader inventory eligibility (including seasonal SKUs) and more accommodating receivables aging thresholds.
• Syndicated ABL facilities — A syndicated ABL facility with a different agent bank that is willing to accept broader eligibility criteria could be structured as a two- or three-lender club deal, potentially with a combination of bank and non-bank participants.
Meridian's collateral profile — approximately $38,000,000 in eligible receivables (under a 90-day aging threshold) and approximately $54,000,000 in eligible inventory at cost (under standard eligibility criteria) — comfortably supports a $40,000,000 ABL facility with conventional advance rates. There is no reason to believe that Meridian would be unable to obtain a $40,000,000 commitment from a different lender on terms more favorable than those reflected in Ridgeline's Best and Final Term Sheet.
B. Potential Alternative Lender Approaches
If Meridian and Brindoval determine that the Ridgeline negotiation has reached an impasse, Calderwood & Harkness recommends the following approach to identifying and engaging alternative ABL lenders:
(i) Approach two to three alternative ABL lenders on a bilateral or small club basis. The initial outreach should be structured as a competitive process to maximize leverage and obtain the most favorable terms available in the current market.
(ii) Consider non-bank ABL platforms that may apply less conservative eligibility criteria, recognizing that such platforms typically price their facilities at wider spreads. The incremental pricing cost must be weighed against the value of obtaining the full $40,000,000 commitment with broader eligibility criteria that accommodate Meridian's seasonal inventory profile.
(iii) Consider a syndicated ABL with a different agent bank that has demonstrated willingness to apply market-standard eligibility criteria for consumer products borrowers. Calderwood & Harkness has existing relationships with ABL lending groups at several national bank platforms and can facilitate introductions.
(iv) Any alternative process would require approximately four to eight weeks for new term sheet negotiation, field examination, and definitive documentation, as well as intercreditor discussions with Greystone Capital Finance LLC. The field examination timeline is a key gating item — most ABL lenders will require an independent appraisal of the borrower's collateral before committing to a term sheet, and the examination itself typically requires two to three weeks from engagement of the appraisal firm to delivery of the final report.
C. Timing Considerations
Timing is a critical factor in Meridian's decision-making process. Meridian's seasonal inventory build typically begins in June for the Q3 peak season. In order for Meridian to have an ABL facility in place in time to fund the Q3 build-out, a new credit facility would need to close by late June or early July 2022 at the latest.
If a new ABL process is initiated promptly — in early May 2022 — a closing by the end of Q2 2022 (i.e., June 30, 2022) is achievable but would require an aggressive timeline. Key milestones would include:
• Weeks 1–2 (early to mid-May): Preliminary lender outreach, receipt of indicative term sheets, selection of preferred lender(s).
• Weeks 2–3 (mid-May to late May): Term sheet negotiation and execution.
• Weeks 3–5 (late May to mid-June): Field examination by lender's appraiser; drafting and negotiation of definitive credit agreement and ancillary documents.
• Weeks 5–7 (mid-June to late June): Intercreditor agreement negotiation with Greystone; UCC filings and perfection; satisfaction of closing conditions.
• Week 8 (late June): Closing.
This timeline is aggressive but feasible, provided that Meridian moves promptly to initiate the process and that the selected alternative lender is prepared to commit resources to an accelerated timeline.
As an alternative or interim measure, Meridian may consider negotiating a short-term increase under the Greystone Term Loan (to the extent permitted by the Greystone credit agreement) or a temporary bridge facility from Brindoval or a third-party bridge lender, to provide interim liquidity while a longer-term ABL facility is established with a new lender. Calderwood & Harkness can advise on the feasibility and structuring of any such interim arrangements.
Calderwood & Harkness is prepared to assist Meridian and Brindoval in evaluating and approaching alternative lenders if so instructed. We have existing relationships with ABL lending groups at multiple national bank platforms and non-bank ABL lenders and can commence outreach immediately upon authorization.
IX. RECOMMENDATION
Based on the foregoing analysis, Calderwood & Harkness recommends the following course of action:
1. Reject Both Alternatives. Meridian should reject both Alternative A (commitment reduction to $35,000,000) and Alternative B ($5,000,000 availability reserve) as set forth in Ridgeline's Best and Final Term Sheet dated April 29, 2022. Neither alternative meets Meridian's seasonal working capital requirements, and both are driven by Ridgeline's overly conservative collateral eligibility criteria — specifically, the exclusion of $12,000,000 in seasonal inventory and the non-market tightening of the receivables aging threshold from >90 days to >60 days past invoice — rather than by genuine credit risk concerns warranted by Meridian's financial condition or collateral quality.
2. Authorize Final Negotiation Attempt. Meridian should authorize Calderwood & Harkness to communicate the rejection to Ridgeline (via Whitfield Ames LLP) and to make a single, final attempt to negotiate Ridgeline's return to the full $40,000,000 revolving commitment with no availability reserve. In this final communication, Calderwood & Harkness will clearly and firmly present Meridian's position, supported by the borrowing base analysis and market data set forth in this memorandum, while preserving the option of a clean break if Ridgeline does not move from its Best and Final position.
3. Initiate Parallel Process with Alternative Lenders. In parallel with the final negotiation attempt with Ridgeline, Meridian and Brindoval should begin evaluating alternative ABL lenders to ensure continuity of the seasonal financing timeline. Calderwood & Harkness is prepared to commence outreach to alternative lenders immediately upon authorization, with the goal of obtaining indicative term sheets from two to three alternative ABL platforms within two weeks of engagement.
4. Formal Termination if No Movement. If Ridgeline confirms that it will not move from its Best and Final position, Calderwood & Harkness recommends formal termination of term sheet discussions with Ridgeline and closure of the Ridgeline engagement. Calderwood & Harkness will prepare a formal termination letter for Meridian's review and transmittal.
We believe this approach balances the preservation of the Ridgeline relationship against the imperative of securing adequate financing on terms that support Meridian's operational needs and growth plan. The parallel process with alternative lenders ensures that Meridian is not left without financing options if the Ridgeline negotiation concludes without a satisfactory outcome.
X. NEXT STEPS
If the recommendation set forth in Section IX is accepted, Calderwood & Harkness proposes the following immediate next steps:
1. Marcus Ellsworth (CEO, Meridian) and Evelyn Crumveth (Managing Partner, Brindoval Partners Fund III, LP) to confirm authorization to reject the Best and Final Term Sheet and to authorize Calderwood & Harkness to make a single, final negotiation attempt with Ridgeline. Calderwood & Harkness requests confirmation by email or written instruction no later than May 6, 2022, to allow sufficient time for preparation and transmission of the rejection communication.
2. If authorized, Calderwood & Harkness will prepare and transmit a written communication to Whitfield Ames LLP (Catherine Royce and Benjamin Nakamura) setting forth Meridian's rejection of both Alternative A and Alternative B, together with a substantive restatement of Meridian's position on the eligibility criteria and a request for a call with Ridgeline (Jonathan Kershaw, SVP, Asset-Based Lending) to present the rejection and Meridian's final counter-proposal. We anticipate transmitting this communication within two business days of receiving authorization.
3. If Ridgeline does not agree to resume negotiations on the basis of a $40,000,000 commitment with no availability reserve, Calderwood & Harkness will prepare a formal termination letter for Meridian's review and transmittal to Ridgeline and Whitfield Ames LLP.
4. In parallel, Calderwood & Harkness will prepare a brief memorandum on alternative lender options for review by Meridian's management team and Brindoval. This brief will identify specific potential lender counterparties, provide indicative pricing ranges based on current market conditions, and outline the timeline and key milestones for a replacement ABL process.
5. All intercreditor discussions with Greystone Capital Finance LLC (Alan Fitzpatrick, Director, Portfolio Management) remain on hold pending resolution of the primary lending relationship. Once a replacement lender is identified and a term sheet is executed, Calderwood & Harkness will promptly reengage with Greystone to initiate formal intercreditor negotiations.
6. Calderwood & Harkness notes that the costs incurred by Bellweather Appraisal Group LLC in connection with its preliminary field examination of Meridian's inventory and receivables may be Meridian's responsibility under the initial engagement terms agreed with Ridgeline at the commencement of the diligence process. Meridian should confirm the terms of any fee obligations to Ridgeline or Bellweather in connection with the field examination, as these obligations would survive termination of the term sheet discussions. Calderwood & Harkness will review the relevant engagement documentation and advise Meridian on any outstanding obligations in connection with any formal termination.
We are available to discuss this memorandum and the recommended course of action at the recipients' earliest convenience. Please do not hesitate to contact Stephanie Okafor at (212) 555-4812 or Daniel Obi at (212) 555-4837 with any questions or to schedule a call.
XI. DISCLAIMER AND PRIVILEGE NOTICE
This memorandum constitutes a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP, One Liberty Plaza, 45th Floor, New York, New York 10006, in its capacity as counsel to Meridian Consumer Brands LLC in connection with the matters described herein.
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the named recipients: Raymond Chu, General Counsel, Meridian Consumer Brands LLC; Patricia Delgado, CFO, Meridian Consumer Brands LLC; Marcus Ellsworth, CEO, Meridian Consumer Brands LLC; and Evelyn Crumveth, Managing Partner, Brindoval Partners Fund III, LP. This memorandum is not intended for distribution, dissemination, or disclosure to any other person or entity without the prior written consent of Calderwood & Harkness LLP. Any unauthorized distribution, copying, or disclosure of this memorandum, in whole or in part, may result in a waiver of the attorney-client privilege and work product protections applicable to this communication.
This memorandum does not constitute a legal opinion. The analysis and recommendations set forth herein are based on the facts and circumstances known to Calderwood & Harkness LLP as of the date of this memorandum, including information provided by Meridian Consumer Brands LLC, Brindoval Partners Fund III, LP, and their respective officers and advisors, as well as documents and communications received from or exchanged with Ridgeline National Bank, N.A. and its counsel, Whitfield Ames LLP. Calderwood & Harkness LLP has not independently verified all factual information relied upon herein and assumes no responsibility for the accuracy or completeness of information provided by third parties. The analysis and recommendations herein are subject to change based on developments in the facts, circumstances, or applicable law.
Nothing in this memorandum is intended to create, and receipt of this memorandum does not constitute, an attorney-client relationship between Calderwood & Harkness LLP and any person or entity other than Meridian Consumer Brands LLC.
— End of Memorandum —
CALDERWOOD & HARKNESS LLP
By: ________
Name: Stephanie Okafor
Title: Partner, Banking & Finance
By: ________