PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 45th Floor New York, New York 10006 Tel: (212) 558-4000
Fax: (212) 558-3588
March 4, 2022
TO: Raymond Chu, General Counsel, Meridian Consumer Brands LLC Patricia Delgado, Chief Financial Officer, Meridian Consumer Brands LLC
FROM: Stephanie Okafor, Partner, Banking & Finance, Calderwood & Harkness LLP Daniel Obi, Associate, Banking & Finance, Calderwood & Harkness LLP
RE: Intercreditor Issues — Proposed $40,000,000 Asset-Based Revolving Credit Facility with Ridgeline National Bank, N.A. / Existing $75,000,000 First Lien Term Loan with Greystone Capital Finance LLC
Matter No.: 1011-00001 Engagement Reference: C&H-EL-2022-0124-MCB
I. Executive Summary
The purpose of this memorandum is to identify, analyze, and provide preliminary recommendations on the key intercreditor issues that will need to be resolved in connection with the proposed $40,000,000 asset-based revolving credit facility (the "Proposed ABL Facility") to be provided by Ridgeline National Bank, N.A. ("Ridgeline"), given the existence of Meridian Consumer Brands LLC's ("Meridian" or the "Company") existing $75,000,000 first lien term loan (the "Existing Term Loan") with Greystone Capital Finance LLC ("Greystone"). The Existing Term Loan was originated under Greystone loan reference GCF-MCB-2019-1215, dated December 15, 2019, and is scheduled to mature in December 2025. As of January 2022, the outstanding balance on the Existing Term Loan is approximately $61,500,000.
It is anticipated that an intercreditor agreement (the "ICA") between Ridgeline (in its capacity as ABL agent and lender) and Greystone (in its capacity as term loan agent and lender) will be a condition precedent to the closing of the Proposed ABL Facility. This is consistent with market practice in transactions of this nature and has been confirmed in the term sheet materials received from Ridgeline and its counsel.
The proposed structure for the intercreditor arrangement is a split-collateral (sometimes referred to as "split-lien") framework, which is the market-standard architecture for asset-based revolving facilities co-existing alongside first lien term loan facilities in sponsored middle-market transactions. Under this framework, each lender holds a first-priority security interest in a designated pool of collateral ("Priority Collateral") and a subordinated, second-priority security interest in the other lender's Priority Collateral. The ICA governs the relative rights, remedies, and priority of each secured party with respect to the overlapping collateral pools.
We note that Greystone has provided informal confirmation of its willingness to negotiate an intercreditor agreement in connection with the Proposed ABL Facility. This confirmation was communicated via email from Alan Fitzpatrick, Director, Portfolio Management at Greystone, dated February 8, 2022. However, formal intercreditor negotiations have not yet commenced, and Mr. Fitzpatrick's email does not constitute a binding commitment on the part of Greystone to agree to any particular terms or structure.
New York law is anticipated to govern both the Proposed ABL Facility and the ICA, consistent with the governing law provisions of the Existing Term Loan credit agreement and the expectations set forth in the Ridgeline term sheet.
This memorandum is intended to frame the key negotiating issues for Meridian's consideration before the Company authorizes Calderwood & Harkness to initiate formal discussions with Greystone and its outside counsel. It is not intended to be an exhaustive analysis of every provision of the anticipated ICA, but rather a focused discussion of the issues that are most likely to be the subject of significant negotiation and that have the greatest potential impact on Meridian's operational flexibility, capital structure, and strategic options. We will prepare supplemental memoranda as the term sheet negotiations with Ridgeline progress and as additional information becomes available, including a detailed review of the Existing Term Loan credit agreement's consent and amendment requirements.
II. Background and Transaction Overview
A. Meridian Consumer Brands LLC — Company Overview
Meridian Consumer Brands LLC is a Delaware limited liability company headquartered at 401 West 33rd Street, Suite 1200, New York, New York 10001. The Company operates in the consumer products industry, with a focus on personal care products, household goods, and retail distribution. Meridian maintains a diversified product portfolio distributed through national and regional retail channels, e-commerce platforms, and wholesale partnerships.
Meridian is a wholly owned portfolio company of Brindoval Partners Fund III, LP ("Brindoval"), a Delaware limited partnership with its principal office located at 590 Madison Avenue, 28th Floor, New York, New York 10022. Brindoval is a mid-market private equity sponsor with a fund size of approximately $1.2 billion. Brindoval acquired Meridian in 2019 for an enterprise value of approximately $210,000,000. The Managing Partner of Brindoval is Evelyn Crumveth.
The Company's employer identification number (EIN) is 84-3291057. Meridian's registered agent in Delaware is Capitol Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801.
Key members of Meridian's management team include:
• Marcus Ellsworth — Chief Executive Officer
• Patricia Delgado — Chief Financial Officer
• Raymond Chu — General Counsel
For fiscal year 2021, Meridian reported revenue of approximately $185,000,000, adjusted EBITDA of approximately $22,400,000, and total assets of approximately $142,000,000. These figures reflect continued organic growth following the Brindoval acquisition, notwithstanding certain supply chain disruptions experienced during 2020 and early 2021. The Company's current asset base is heavily weighted toward accounts receivable and inventory, which supports the commercial rationale for the Proposed ABL Facility.
B. Existing First Lien Term Loan with Greystone Capital Finance LLC
The Existing Term Loan is held and administered by Greystone Capital Finance LLC, a Delaware limited liability company headquartered at 125 High Street, Suite 2500, Boston, Massachusetts 02110. Greystone is a direct lending platform focused on senior secured credit facilities for middle-market companies, and it serves as both the lender and the administrative agent under the Existing Term Loan.
The key terms of the Existing Term Loan are as follows:
The Existing Term Loan is secured by a first-priority lien on substantially all assets of Meridian, including real property, intellectual property, equipment, fixtures, general intangibles, and — of particular relevance to the intercreditor analysis — residual liens on accounts receivable, inventory, and deposit accounts. The breadth of the existing collateral package means that the Proposed ABL Facility's priority lien on receivables, inventory, and deposit accounts will necessarily be carved out from Greystone's existing first-priority position, and Greystone's first-priority lien on those asset categories will need to be subordinated to Ridgeline's senior position under the ICA.
Meridian has maintained its obligations under the Existing Term Loan in good standing, and as of the date of this memorandum, no events of default or potential events of default exist under the Existing Term Loan credit agreement. The Company's relationship with Greystone and with Mr. Fitzpatrick in particular has been constructive, which we believe will facilitate intercreditor negotiations.
C. Proposed ABL Facility with Ridgeline National Bank, N.A.
The Proposed ABL Facility will be provided by Ridgeline National Bank, National Association, a nationally chartered banking institution regulated by the Office of the Comptroller of the Currency (OCC), headquartered at 200 Tryon Street, Charlotte, North Carolina 28202. Ridgeline has assigned internal deal identification number ABL-2022-0417 to the proposed transaction.
The principal terms of the Proposed ABL Facility, as reflected in the most recent term sheet received from Ridgeline (dated February 28, 2022), are summarized below:
Ridgeline's outside counsel for the Proposed ABL Facility is Whitfield Ames LLP, with Catherine Royce (Partner) and Benjamin Nakamura (Associate) serving as the primary deal team. Whitfield Ames's offices are located at 1585 Broadway, 34th Floor, New York, New York 10036.
The term sheet negotiation process has been as follows: the initial term sheet was received from Ridgeline on January 28, 2022; Calderwood & Harkness delivered a marked-up term sheet on behalf of Meridian on February 14, 2022; a revised term sheet reflecting Ridgeline's responses to our markup was received on February 28, 2022. Negotiations remain ongoing with respect to several open issues, including collateral eligibility criteria, advance rates, the composition and calculation methodology of the borrowing base, and certain financial covenant thresholds. These outstanding term sheet issues are addressed in our separate correspondence and are not the subject of this memorandum, except to the extent they bear directly on the intercreditor structure.
D. Purpose of Intercreditor Agreement
The intercreditor agreement serves three essential functions in the context of the proposed transaction:
First, the Existing Term Loan documents contain negative pledge and lien covenant restrictions that prohibit Meridian from granting liens on its assets except as expressly permitted under the credit agreement. The proposed ABL first-priority liens on receivables, inventory, and deposit accounts fall outside the scope of the existing permitted liens baskets and will therefore require Greystone's consent, either through a direct waiver or amendment or through the execution of the ICA itself as the vehicle for authorizing the ABL liens.
Second, the Proposed ABL Facility term sheet expressly conditions closing on the execution of a satisfactory intercreditor agreement between Ridgeline and Greystone. This is a non-waivable condition precedent, and closing of the ABL Facility cannot occur without a fully negotiated and executed ICA in place.
Third, the ICA will establish the relative priority of liens held by Ridgeline and Greystone, delineate the respective collateral packages assigned to each secured party, and govern the exercise of rights and remedies by each party in the event of a default, enforcement action, or insolvency proceeding. The ICA is thus the foundational document governing the relationship between the two secured creditors and is of critical importance to Meridian's capital structure and its operational flexibility under both credit facilities.
III. Proposed Split-Collateral Intercreditor Structure
A. Overview of Split-Collateral Framework
The split-collateral (or "split-lien") intercreditor structure is the market-standard approach for ABL revolving facilities co-existing with term loan facilities in sponsored middle-market transactions. This framework has been widely adopted in the U.S. leveraged lending market and has been the subject of extensive judicial interpretation, particularly in the context of bankruptcy proceedings. The prevalence of the split-collateral model provides Meridian with a well-developed body of precedent and market convention to draw upon in negotiating the ICA.
Under the split-collateral framework, each secured party holds a first-priority lien on its designated "Priority Collateral" and a second-priority (subordinate) lien on the other party's Priority Collateral. This results in a cross-lien structure in which both Ridgeline and Greystone hold security interests in substantially all of Meridian's assets, but the priority of those interests differs depending on the category of collateral at issue.
The ICA governs which party controls remedies with respect to which collateral pool and sets forth standstill, turnover, and waterfall provisions that determine how proceeds of collateral are applied in enforcement and insolvency scenarios. The ICA also addresses a range of ancillary issues, including the rights of each party in bankruptcy proceedings, the ability of each party to amend or refinance its credit facility, and the sharing of information between the two lender groups.
The commercial logic of the split-collateral structure aligns each lender's priority position with the asset class most closely related to its lending model. The ABL lender (Ridgeline) extends credit based on a borrowing base tied to receivables and inventory — liquid, rotating assets that are subject to frequent valuation and monitoring through field examinations and borrowing base certifications. The term loan lender (Greystone) extends credit based on a going-concern valuation of the enterprise and looks primarily to fixed and long-lived assets (real property, equipment, IP) for recovery in a downside scenario. The split-collateral framework reflects and reinforces this commercial alignment.
B. Proposed Collateral Allocation
1. ABL Priority Collateral (Ridgeline — First Lien)
Under the proposed structure, the following categories of assets will constitute "ABL Priority Collateral," subject to Ridgeline's first-priority lien:
• Accounts receivable, including all trade receivables, credit card receivables, and other rights to payment for goods sold or services rendered by Meridian. Eligible receivables are currently estimated at approximately $38,000,000, based on the Company's most recent aging report.
• Inventory, including all raw materials, work-in-process, finished goods, packaging materials, and goods held for sale or distribution by Meridian. Eligible inventory is currently estimated at approximately $54,000,000 at cost, subject to adjustment based on the appraisal and field examination to be conducted by Bellweather Appraisal Group LLC on behalf of Ridgeline.
• Deposit accounts, including any concentration accounts, lockbox accounts, collection accounts, and other bank accounts maintained by Meridian in the ordinary course of business into which proceeds of receivables and inventory are deposited.
• Related general intangibles and supporting obligations directly relating to the foregoing accounts receivable and inventory, including customer lists, sales records, and contract rights arising from the sale of inventory or the collection of receivables.
• Proceeds of all of the foregoing categories, including cash proceeds, insurance proceeds, and any other proceeds arising from the sale, collection, exchange, or other disposition of ABL Priority Collateral.
2. Term Loan Priority Collateral (Greystone — First Lien)
The following categories of assets will constitute "Term Loan Priority Collateral," subject to Greystone's first-priority lien:
• Real property, including any owned real estate, leasehold interests, and fixtures related thereto.
• Equipment and fixtures, including all machinery, vehicles, furniture, computer hardware, and other tangible personal property used in Meridian's operations.
• intellectual property, including all trademarks, service marks, trade names, brand names, patents, patent applications, copyrights, domain names, social media accounts, and associated goodwill. Given the consumer products nature of Meridian's business, intellectual property — and in particular the Company's brand portfolio — represents a significant component of enterprise value.
• Equity interests in subsidiaries, if any, whether direct or indirect.
• General intangibles not directly related to accounts receivable or inventory, including contract rights, licenses, permits, and governmental authorizations.
• All other personal property of Meridian not designated as ABL Priority Collateral, including commercial tort claims, investment property, letter-of-credit rights, and chattel paper.
• Proceeds of all of the foregoing categories.
3. Cross-Liens (Second Priority)
Under the split-collateral structure, each secured party will also hold a subordinated, second-priority security interest in the other party's Priority Collateral:
• Ridgeline will hold a second-priority lien on all Term Loan Priority Collateral, subordinate and junior to Greystone's first-priority lien on those assets.
• Greystone will hold a second-priority lien on all ABL Priority Collateral, subordinate and junior to Ridgeline's first-priority lien on those assets.
These second-priority liens will be subject to significant standstill and remedy limitations as set forth in the ICA, as discussed in detail in Section V below. The purpose of the cross-liens is to provide each lender with residual collateral coverage in the event that proceeds of its own Priority Collateral are insufficient to satisfy its claims in full. However, the second-priority lienholder's ability to exercise remedies against the other party's Priority Collateral will be heavily constrained to protect the first-priority lienholder's senior position.
C. Characterization Issues and Boundary Questions
While the split-collateral framework provides a workable conceptual division of Meridian's assets, the practical application of this division will require careful drafting to address assets that do not fit neatly into either collateral pool. Several characterization issues and boundary questions merit particular attention:
Mixed-Use Assets. Certain assets of Meridian may have characteristics of both ABL Priority Collateral and Term Loan Priority Collateral. For example, commercial tort claims arising from disputes related to the sale of inventory could be characterized as either receivables-related general intangibles (ABL Priority Collateral) or general intangibles not related to receivables (Term Loan Priority Collateral). Similarly, insurance proceeds may relate to losses affecting both collateral pools (e.g., a casualty loss affecting both inventory and equipment in the same facility). The ICA will need to include clear definitional provisions and allocation rules to address these mixed-use assets and avoid disputes between the lenders over classification.
Cash and Cash Equivalents. Cash and cash equivalents are typically classified as ABL Priority Collateral, on the theory that they represent proceeds of receivables and inventory. However, Greystone may seek to carve out certain restricted cash accounts, reserve accounts, or escrow accounts that are funded from sources other than the collection of receivables or the sale of inventory. We anticipate that this will be a point of negotiation, and we recommend that Meridian support the broadest possible definition of ABL Priority Collateral with respect to cash, as this will maximize the borrowing base and provide Ridgeline with the collateral coverage necessary to support the full $40,000,000 commitment.
intellectual Property. Meridian's intellectual property portfolio, particularly its consumer-facing trademarks and brand names, is critical to the Company's business and represents a significant component of its enterprise value. Greystone is expected to insist that trademarks and brand-related IP remain classified as Term Loan Priority Collateral, consistent with the existing first-priority lien structure. We do not anticipate significant resistance from Ridgeline on this point, as ABL lenders typically do not seek first-priority liens on IP assets. However, Ridgeline may seek certain access and license rights to Meridian's IP in an enforcement scenario — specifically, a non-exclusive license to use Meridian's trademarks and trade names in connection with the liquidation and disposition of inventory constituting ABL Priority Collateral. This is a market-standard request, and we address it in greater detail in Section V.C below.
Tax Refunds and Government Receivables. Tax refunds and receivables from governmental entities may be characterized as either accounts receivable (ABL Priority Collateral) or general intangibles (Term Loan Priority Collateral). The treatment of these items should be addressed specifically in the ICA's definitional provisions.
Recommendation: Meridian should seek the broadest possible definition of ABL Priority Collateral to ensure maximum borrowing base support and to give Ridgeline comfort on collateral coverage. An overly narrow definition of ABL Priority Collateral could constrain availability under the Proposed ABL Facility and reduce the economic benefit of the transaction to the Company. At the same time, Meridian should avoid unnecessary disputes with Greystone over classification of non-core assets, as preserving a constructive relationship with Greystone will be important throughout the intercreditor negotiation process.
IV. Required Greystone Consents
A. Negative Pledge / Lien Covenant
The Existing Term Loan credit agreement, dated December 15, 2019, contains a negative pledge covenant that prohibits Meridian from creating, incurring, assuming, or permitting to exist any lien on any of its assets or properties, except for liens expressly permitted under the credit agreement (commonly referred to as "Permitted Liens"). The proposed ABL first-priority liens on accounts receivable, inventory, and deposit accounts — which would prime Greystone's existing first-priority position on those asset categories — are not within the scope of the existing Permitted Liens baskets as we currently understand them.
Accordingly, Greystone's consent will be required to permit the ABL liens. This consent may take one of two forms:
(a) A formal waiver or amendment to the Existing Term Loan credit agreement, adding a new Permitted Liens basket that expressly permits first-priority liens in favor of the ABL lender on designated ABL Priority Collateral, subject to and in accordance with the terms of an intercreditor agreement; or
(b) More commonly in market practice, the execution of the ICA itself as sufficient authorization for the ABL liens, accompanied by a conforming amendment to the Existing Term Loan credit agreement that references the ICA and confirms that liens granted in accordance with the ICA constitute Permitted Liens.
We anticipate that Greystone will prefer the second approach, as it provides Greystone with direct contractual protections through the ICA rather than relying solely on the negative pledge carve-out in the credit agreement. In either case, Greystone's credit committee approval will be required before formal consent can be granted.
B. Additional Indebtedness Covenant
In addition to the negative pledge covenant, the Existing Term Loan credit agreement is expected to contain a covenant restricting Meridian's ability to incur additional indebtedness beyond specified permitted baskets. The $40,000,000 ABL commitment will constitute additional indebtedness for purposes of this covenant and will need to fall within a permitted basket or require a specific consent or amendment from Greystone.
We need to review the Existing Term Loan credit agreement in detail to determine:
(i) Whether the permitted indebtedness definition includes a specific ABL/revolver carve-out that would accommodate the Proposed ABL Facility without further amendment;
(ii) Whether any such carve-out is subject to a dollar cap (and, if so, whether $40,000,000 falls within the cap);
(iii) Whether the carve-out imposes conditions on the permitted revolving indebtedness, such as a requirement that the indebtedness be secured only by specified categories of collateral, that it be subject to an intercreditor agreement on terms acceptable to Greystone, or that the ABL facility not exceed a specified multiple of the borrowing base; and
(iv) Whether the carve-out requires that the revolving facility be non-amortizing or imposes restrictions on the maturity date relative to the Existing Term Loan.
Our preliminary review of the Existing Term Loan documentation suggests that there is a revolving credit facility carve-out within the permitted indebtedness definition, but the dollar cap and specific conditions attached to that carve-out must be confirmed through a comprehensive review of the credit agreement. Daniel Obi and Lisa Morrow will conduct this detailed review and prepare a supplemental memorandum addressing the precise scope of consents and amendments required.
C. Consent Process and Timing
While Greystone's informal willingness to negotiate an ICA, as communicated by Alan Fitzpatrick in his February 8, 2022 email, is an encouraging sign, it is non-binding and does not commit Greystone to any particular timeline, terms, or outcome. The formal consent process is expected to involve the following steps:
(i) Submission of a written consent request to Greystone, together with a draft of the proposed ICA terms and the substantially final ABL term sheet (or, alternatively, a summary term sheet describing the key economic and structural terms of the Proposed ABL Facility);
(ii) Greystone credit committee review and approval, which may take two to four weeks depending on Greystone's internal governance processes and the extent to which the proposed ICA terms deviate from Greystone's standard intercreditor form;
(iii) Negotiation and execution of the ICA and any conforming amendments to the Existing Term Loan credit agreement, including review by Greystone's outside counsel (whose identity has not yet been disclosed to us).
Based on our experience with comparable transactions, the typical timeline for negotiation of an intercreditor agreement in a split-collateral context is approximately four to eight weeks from the date of initial draft circulation to final execution. This timeline may be compressed or extended depending on the complexity of the issues, the responsiveness of the parties, and the extent of differences between the parties' initial positions.
Recommendation: Meridian should not initiate formal discussions with Greystone regarding the ICA until the ABL term sheet with Ridgeline is substantially settled. Commencing ICA negotiations before the ABL terms are finalized creates a risk of negotiating intercreditor terms that may be rendered moot by subsequent changes in the ABL structure, incurring unnecessary legal costs, and providing Greystone with premature insight into deal dynamics. We recognize, however, that if Ridgeline insists on evidence of Greystone's formal consent as a condition to advancing the ABL process beyond the term sheet stage, it may be necessary to commence ICA discussions on an earlier timeline. We will monitor this issue and advise the Company accordingly.
V. Key Intercreditor Agreement Provisions — Analysis and Negotiating Points
This Section sets forth our analysis of the principal provisions that are expected to be included in the ICA, identifies the key negotiating issues associated with each provision, and provides our preliminary recommendations from Meridian's perspective. We have organized these provisions in approximate order of significance and likely negotiating intensity.
A. Lien Priority and Perfection
The ICA will establish, as a foundational matter, that each party's first-priority lien on its designated Priority Collateral is senior to the other party's second-priority lien on the same collateral, regardless of the order of filing, perfection, or attachment. This contractual priority override is the cornerstone of the split-collateral structure and ensures that the parties' agreed-upon priority arrangement is respected notwithstanding any inconsistency with the general priority rules under Article 9 of the Uniform Commercial Code.
The ICA will include a standard provision pursuant to which each party agrees not to challenge the priority, validity, or enforceability of the other party's liens on such party's Priority Collateral. This non-challenge covenant is critical to the stability of the split-collateral arrangement and is a standard feature of market ICAs.
With respect to filing mechanics, UCC-1 financing statements will be filed by both Ridgeline and Greystone with the Delaware Secretary of State (as the jurisdiction of Meridian's organization) covering substantially all of Meridian's assets. The ICA will expressly override any filing-based priority arguments that might otherwise arise from the relative order of filing, and each party will agree that its second-priority lien on the other party's Priority Collateral is subordinate regardless of the date or sequence of its UCC filings.
Deposit Account Control Agreements. Ridgeline, as the first-priority lienholder on deposit accounts, will require deposit account control agreements ("DACAs") over Meridian's deposit accounts. These DACAs will give Ridgeline exclusive control (within the meaning of Section 9-104 of the UCC) over the Company's bank accounts, enabling Ridgeline to exercise control-based priority and to direct disposition of funds in an enforcement scenario. The ICA should provide that Greystone will not seek to obtain control over any deposit accounts designated as ABL Priority Collateral, and that Greystone acknowledges Ridgeline's exclusive control for purposes of UCC priority.
Recommendation: These are standard provisions that we expect to encounter limited controversy in negotiations. We will ensure that the definitional provisions of the ICA are drafted with sufficient precision to avoid any ambiguity regarding the classification of assets and the corresponding lien priority.
B. Standstill on Enforcement Remedies
The standstill provision is among the most critical — and frequently most contested — provisions in any intercreditor agreement. Its purpose is to restrict the second-priority lienholder's ability to exercise enforcement remedies against the first-priority lienholder's Priority Collateral for a specified period of time following the occurrence of a default, thereby preserving the first-priority lienholder's ability to conduct an orderly liquidation or workout without interference from the junior lienholder.
Under the standard formulation, the second-priority lienholder's enforcement remedies against the other party's Priority Collateral are stayed for a specified standstill period following delivery of an enforcement notice by the second-priority lienholder to the first-priority lienholder. During the standstill period, only the first-priority lienholder may exercise remedies against its Priority Collateral. After expiration of the standstill period, the second-priority lienholder may exercise limited remedies, subject to the continuing seniority of the first-priority lienholder's position and to the turnover obligations described below.
The market-standard standstill period in ABL/term loan intercreditor agreements ranges from 90 to 180 days, with the specific duration being a function of the relative bargaining positions of the parties and the nature of the underlying collateral. In our experience, 180 days has become increasingly common in sponsored middle-market transactions, and we anticipate that Ridgeline will insist on a 180-day standstill protecting ABL Priority Collateral.
The key negotiating issues with respect to the standstill provision include:
• Length of standstill period. Ridgeline, as the first-priority lienholder on ABL Priority Collateral, will seek the longest possible standstill on Greystone's remedies against receivables, inventory, and deposit accounts. Greystone, conversely, will prefer a shorter standstill to preserve its ability to assert its second-priority lien position more promptly. From Greystone's perspective as the first-priority lienholder on Term Loan Priority Collateral, Greystone will seek the longest possible standstill protecting its own Priority Collateral, while Ridgeline will resist an extended standstill on that pool.
• Exceptions to the standstill. Certain circumstances may warrant exceptions to or early termination of the standstill period, including: (a) where the first-priority lienholder has accelerated its debt but has not commenced enforcement within a specified period (indicating inaction that prejudices the second-priority lienholder); (b) where the first-priority lienholder's obligations have been paid in full (eliminating the rationale for the standstill); and (c) where the collateral is subject to material waste, dissipation, or diminution in value that threatens the second-priority lienholder's recovery.
• Commencement trigger. The standstill period is typically triggered by the second-priority lienholder's delivery of a written notice to the first-priority lienholder stating its intention to exercise remedies. The precise triggering event and notice requirements must be clearly defined to avoid disputes over when the standstill period begins to run.
Recommendation: Meridian should support a 180-day standstill in favor of the ABL lender (Ridgeline) with respect to ABL Priority Collateral. This duration provides Ridgeline with adequate time to liquidate receivables and inventory in an orderly manner and, equally important from Meridian's perspective, maximizes the Company's opportunity to negotiate a consensual resolution with both lenders before cross-collateral enforcement commences. An extended standstill period also reduces the risk of a disruptive "race to the assets" scenario that could destroy enterprise value. A reciprocal 180-day standstill in favor of Greystone on Term Loan Priority Collateral is appropriate and should be acceptable to Ridgeline.
C. Exercise of Remedies — ABL Priority Collateral
The ICA should provide that Ridgeline, as the first-priority lienholder on ABL Priority Collateral, has the exclusive right to direct the disposition of accounts receivable, inventory, and deposit accounts during the standstill period and thereafter until the ABL obligations are paid in full. This means that Ridgeline alone will determine the timing, manner, and terms of any foreclosure, collection, or liquidation of ABL Priority Collateral, and Greystone may not interfere with or impede Ridgeline's exercise of these rights.
Greystone's second-priority lien on ABL Priority Collateral will be expressly subject to the ABL obligations and Ridgeline's prior right to enforce. The ICA will include a turnover provision requiring Greystone to deliver to Ridgeline any proceeds of ABL Priority Collateral received by Greystone in contravention of the ICA, whether received through inadvertent payment, setoff, or otherwise. This turnover obligation is a critical protection for Ridgeline and a standard feature of split-collateral ICAs.
IP License for Inventory Liquidation. One issue that frequently arises in ABL/term loan intercreditor negotiations is the ABL lender's need to use the borrower's intellectual property — particularly trademarks and trade names — in connection with the liquidation and disposition of inventory. In the consumer products context, Meridian's inventory derives much of its value from the Company's brand portfolio. Without the ability to sell branded inventory under Meridian's trademarks, the ABL lender's recovery on inventory collateral would be significantly diminished.
Ridgeline is expected to seek a provision in the ICA granting the ABL lender a limited, non-exclusive, royalty-free license to use Meridian's trademarks and other intellectual property solely in connection with the exercise of remedies against inventory constituting ABL Priority Collateral. Greystone, as the first-priority lienholder on intellectual property, may resist granting a broad or perpetual license, and may seek to limit the duration, scope, and terms of any such license.
Recommendation: Meridian should support Ridgeline's request for a limited, non-exclusive license to use Meridian's trademarks and other IP in connection with the liquidation of inventory constituting ABL Priority Collateral. This is market standard in consumer products ABL transactions and will facilitate higher recovery values on inventory collateral, which benefits Meridian to the extent any surplus proceeds are available after satisfaction of the ABL obligations. We recommend that the license be limited to the period necessary to complete the orderly liquidation of inventory and that it not extend to the manufacture of new goods or to uses unrelated to collateral enforcement.
D. Exercise of Remedies — Term Loan Priority Collateral
The ICA will contain reciprocal provisions governing Greystone's rights with respect to Term Loan Priority Collateral. Specifically, Greystone will have the exclusive right to direct the disposition of real property, equipment, IP, and all other Term Loan Priority Collateral during the standstill period and thereafter until the term loan obligations are paid in full. Ridgeline's second-priority lien on Term Loan Priority Collateral will be subordinate to Greystone's first-priority position, and reciprocal turnover obligations will apply to any proceeds of Term Loan Priority Collateral received by Ridgeline in contravention of the ICA.
One issue that warrants particular attention is the treatment of ABL Priority Collateral in the context of a going-concern sale of substantially all of Meridian's assets conducted by Greystone. If Greystone exercises its remedies by foreclosing on or facilitating the sale of the enterprise as a going concern, the sale will necessarily encompass both Term Loan Priority Collateral and ABL Priority Collateral. In such a scenario, the ICA should require that the aggregate proceeds be allocated between the two collateral pools, with proceeds attributable to ABL Priority Collateral applied to the ABL obligations first, and proceeds attributable to Term Loan Priority Collateral applied to the term loan obligations first.
The mechanics of this allocation — including whether proceeds are allocated based on appraised values, net book values, or other methodologies — will be a significant negotiating point. Ridgeline will seek a methodology that maximizes the allocation to ABL Priority Collateral (thereby increasing its recovery), while Greystone will prefer a methodology that minimizes such allocation.
Recommendation: Meridian's interests are best served by clear separation of collateral pools in any enforcement scenario. The Company should advocate for a transparent allocation methodology in the ICA — ideally one tied to independent appraisals — to reduce the risk of disputes between the lenders in a workout or foreclosure context. Disputes between Ridgeline and Greystone over allocation of sale proceeds would be destructive to enterprise value and prejudicial to Meridian's interests.
E. Purchase Option (Right to Purchase Debt)
Market-standard intercreditor agreements in the split-collateral context typically include a provision granting each secured party the right to purchase the other party's debt at par (plus accrued and unpaid interest, fees, and expenses) following the occurrence of an event of default and acceleration. This purchase option serves an important function in the capital structure by allowing the purchasing party to consolidate both credit facilities and gain control over the entire collateral package, thereby facilitating a more orderly resolution of the borrower's financial difficulties.
The key negotiating points with respect to the purchase option include:
• Timing. The purchase option is typically exercisable within a period of 10 to 15 business days following delivery of written notice by one party to the other of its intention to exercise enforcement remedies. The exercise window must be long enough to allow the purchasing party to arrange financing for the acquisition, but short enough to avoid undue delay in the enforcement process.
• Purchase Price. The purchase price is typically par (100% of the outstanding principal amount) plus all accrued and unpaid interest, fees, prepayment premiums (if any), and expenses (including legal fees and advisor fees) incurred by the selling party. The "all-in" purchase price ensures that the selling party is made whole and avoids disputes over the discount rate or market value of the debt.
• Conditions. The purchase is typically made on an "as is, where is" basis, with no representations or warranties from the selling party regarding the underlying debt, the collateral, or the borrower's financial condition. The purchasing party assumes all risks associated with the acquired position.
• Applicability. The purchase option may be bilateral (both Ridgeline and Greystone have the option) or unilateral (only the ABL lender or only the term loan lender has the option). Bilateral options are more common in market practice and provide greater flexibility.
Recommendation: Meridian should advocate for a bilateral purchase option. From the Company's perspective, a bilateral option provides maximum flexibility by ensuring that either lender can move to consolidate the capital structure in a distress scenario. From Brindoval's perspective as sponsor, the bilateral purchase option may facilitate a refinancing or restructuring by enabling the preferred lender (or a third party working with Brindoval) to acquire the other lender's position and implement a consensual resolution. The bilateral option also helps avoid a destructive multi-party enforcement scenario in which both lenders are simultaneously pursuing competing remedies against different collateral pools.
F. Waterfall / Application of Proceeds
The ICA will establish a proceeds waterfall for each collateral pool, governing the order in which proceeds of collateral are distributed to the secured parties. The waterfall is the mechanism by which the split-collateral priority structure is given effect in a liquidation or enforcement scenario.
The standard waterfall structure is as follows:
ABL Priority Collateral Proceeds:
(1) First, to Ridgeline (as ABL agent/lender) for the satisfaction of all ABL obligations until paid in full, including principal, interest, fees, expenses, and any hedging or cash management obligations;
(2) Second, to Greystone (as term loan agent/lender) for the satisfaction of term loan obligations, to the extent of any remaining proceeds;
(3) Third, to Meridian (or as otherwise required by applicable law, including to holders of subordinate liens, judgment creditors, or as directed by a court of competent jurisdiction).
Term Loan Priority Collateral Proceeds:
(1) First, to Greystone (as term loan agent/lender) for the satisfaction of all term loan obligations until paid in full, including principal, interest, fees, expenses, and any hedging or cash management obligations;
(2) Second, to Ridgeline (as ABL agent/lender) for the satisfaction of ABL obligations, to the extent of any remaining proceeds;
(3) Third, to Meridian (or as otherwise required by applicable law).
A key issue in the waterfall structure is the treatment of proceeds of collateral that is difficult to characterize or that relates to both collateral pools. Examples include insurance proceeds on mixed-collateral losses (e.g., a fire that destroys both inventory and equipment in the same facility), eminent domain awards affecting both real property and personal property, and legal settlements that encompass claims related to both collateral pools.
Recommendation: The ICA should define a clear "plug" category allocating ambiguous proceeds in a manner that minimizes the potential for disputes. We recommend that ambiguous proceeds relating to liquid assets (cash, receivables, inventory-related claims) be allocated to the ABL waterfall and that ambiguous proceeds relating to hard assets (real property, equipment, IP-related claims) be allocated to the term loan waterfall. Where a proportional allocation is more appropriate (such as in the case of a single insurance claim covering both inventory and equipment losses), the ICA should provide for allocation based on the relative appraised values of the affected collateral, as determined by a mutually agreed-upon independent appraiser.
G. Bankruptcy / Insolvency Provisions
The ICA will contain extensive provisions governing the parties' respective rights in the event of a bankruptcy or insolvency proceeding of Meridian under Chapter 11 (reorganization) or Chapter 7 (liquidation) of Title 11 of the United States Code (the "Bankruptcy Code"). These provisions are among the most heavily negotiated terms in any intercreditor agreement, as they define each lender's rights at the moment when those rights are most consequential — when the borrower is in financial distress and the value of the collateral is most at risk.
The key bankruptcy-related provisions of the ICA are discussed below:
DIP Financing. In a Chapter 11 case, the debtor (Meridian, as debtor-in-possession) may seek to obtain debtor-in-possession ("DIP") financing to fund operations during the reorganization process. DIP financing is typically secured by superpriority liens on the debtor's assets and may prime existing liens with the approval of the bankruptcy court.
The ICA will address each party's right to consent to, object to, or provide DIP financing. Typically, the ABL lender seeks the right to provide DIP financing on the ABL Priority Collateral without objection from the term loan lender, and the term loan lender seeks the reciprocal right with respect to Term Loan Priority Collateral. The second-priority lienholder may agree not to object to DIP financing offered by the first-priority lienholder on the first-priority lienholder's Priority Collateral, provided that the DIP financing does not prime or adversely affect the second-priority lienholder's liens on its own Priority Collateral.
Adequate Protection. Under Section 363(e) and Section 361 of the Bankruptcy Code, a secured creditor whose collateral is used by the debtor during a bankruptcy case is entitled to "adequate protection" of its interest. Adequate protection may take the form of cash payments, replacement liens, or superpriority administrative expense claims.
The ICA will typically provide that the second-priority lienholder agrees not to seek adequate protection in the form of payments, liens, or superpriority claims that would be senior to the first-priority lienholder's claims on the relevant Priority Collateral. This restriction prevents the second-priority lienholder from using the bankruptcy process to leapfrog the first-priority lienholder's contractual priority.
Relief from the Automatic Stay. Section 362 of the Bankruptcy Code imposes an automatic stay on all enforcement actions against the debtor and its property upon the filing of a bankruptcy petition. A secured creditor may seek relief from the stay under Section 362(d) if its interest in collateral is not adequately protected or if the debtor has no equity in the collateral and the collateral is not necessary for an effective reorganization.
The ICA will provide that the second-priority lienholder agrees not to seek relief from the automatic stay to foreclose on the first-priority lienholder's Priority Collateral during the contractual standstill period, consistent with the standstill provisions discussed in Section V.B above.
Plan Voting and Credit Bidding. The ICA may include provisions governing whether the second-priority lienholder may vote its deficiency claim (the unsecured portion of its claim, to the extent that the collateral value is insufficient to cover the full amount owed) separately from its secured claim. Additionally, the ICA may address each party's right to credit bid (i.e., to bid the value of its secured claim in lieu of cash) on collateral in a Section 363 sale or under a plan of reorganization.
The right to credit bid is a powerful tool for secured creditors and is often the subject of intense negotiation. The first-priority lienholder will typically insist on the exclusive right to credit bid on its Priority Collateral, free from interference by the second-priority lienholder. The second-priority lienholder may seek the right to credit bid the total amount of both claims (first- and second-priority) if it acquires the first-priority lienholder's position through the purchase option.
Section 363 Sales. The ICA will address consent rights and credit-bid rights in connection with sales of the debtor's assets under Section 363 of the Bankruptcy Code. In a 363 sale, the debtor may sell assets free and clear of liens, with liens attaching to the sale proceeds. The ICA's waterfall provisions will govern the distribution of proceeds in this context, and the credit-bid rights discussed above will determine each party's ability to participate as a bidder in the sale process.
Recommendation: The bankruptcy provisions of the ICA are among the most consequential terms for Meridian and Brindoval, as they directly affect the Company's ability to access DIP financing, to propose a plan of reorganization, and to maximize going-concern value in a distress scenario. Meridian should ensure that the ICA does not unduly restrict the Company's ability to obtain DIP financing from either lender (or from a third-party DIP provider) and that the ICA preserves the Company's ability to propose a plan of reorganization that treats both lenders fairly. We will work closely with our restructuring colleagues in analyzing and negotiating these provisions.
H. Amendments and Refinancing
The ICA should permit each party to amend, restate, supplement, or refinance its credit facility within agreed parameters without requiring the consent of the other party. This refinancing flexibility is essential to Meridian's and Brindoval's ability to manage the Company's capital structure over time, including the ability to take advantage of favorable market conditions, to adjust the maturity profile of the debt, or to bring in new lending relationships.
The key concept is "Refinancing Indebtedness" — the ICA should expressly permit the replacement of either the ABL facility or the term loan facility with refinancing indebtedness that is subject to the same (or substantially similar) intercreditor terms as the original facility. The refinancing lender would step into the shoes of the original lender under the ICA, subject to agreed limitations.
The following dollar caps will need to be negotiated:
• ABL Facility: An initial cap of $40,000,000 (reflecting the current commitment), with incremental capacity to accommodate potential future growth. We recommend seeking a cap of up to $55,000,000, which would provide Meridian with meaningful headroom to increase the ABL facility as the business grows without requiring renegotiation of the ICA.
• Term Loan: An initial cap of $75,000,000 (reflecting the original principal amount of the Existing Term Loan), with possible incremental capacity. Greystone may resist any increase above the original principal, while Meridian may seek flexibility to accommodate potential add-on term loan tranches.
In addition to dollar caps, the ICA should include maturity restrictions providing that refinancing indebtedness may not mature earlier than the original facility being refinanced. This prevents "lien creep" — a scenario in which a short-dated refinancing facility creates acceleration pressure on the borrower that was not contemplated when the original intercreditor arrangement was established.
Recommendation: Meridian should seek the broadest possible refinancing flexibility for both facilities, as this will preserve the Company's and Brindoval's ability to optimize the capital structure over time. The incremental capacity on the ABL facility ($55,000,000 cap) is particularly important given the Company's growth trajectory and the potential for increased working capital needs. We anticipate that Greystone will accept reasonable refinancing flexibility, as it is in Greystone's interest to have a stable and well-structured intercreditor arrangement that survives any refinancing of either facility.
I. Reporting and Information Sharing
The ICA may require or permit limited sharing of financial information and borrowing base reports between Ridgeline and Greystone. This is a provision that, while seemingly administrative, can have significant strategic implications for Meridian.
As the ABL lender, Ridgeline will have access to detailed borrowing base certificates, monthly collateral reports, and periodic field examination reports prepared by Bellweather Appraisal Group LLC or other field examiners. These reports contain granular information about Meridian's receivables aging, inventory composition, collection trends, dilution rates, and overall liquidity position. Greystone, as the term loan lender, may seek the right to receive copies of these reports, arguing that access to borrowing base information enhances its ability to monitor its second-priority collateral position.
However, from Meridian's perspective, providing Greystone with access to borrowing base certificates and field examination reports carries significant risks. Specifically:
• Detailed borrowing base data could give Greystone excessive visibility into the Company's ABL collateral and liquidity position, information that is not currently available to Greystone under the Existing Term Loan credit agreement.
• Access to this information could influence Greystone's willingness to provide consents or forbearances in the future, as Greystone could use ABL availability data to assess the Company's financial flexibility and to calibrate its negotiating posture accordingly.
• In a distress scenario, Greystone's access to real-time liquidity information could enable it to act more aggressively in seeking to protect its position, potentially to the detriment of Meridian's workout or restructuring efforts.
Recommendation: Meridian should restrict information sharing under the ICA to the minimum required by market practice. Specifically, we recommend limiting information sharing to: (a) annual audited financial statements, which are already required to be delivered under the Existing Term Loan credit agreement; (b) quarterly unaudited financial statements, to the extent already provided to Greystone; and (c) publicly available information. We recommend that Meridian resist Greystone's requests for access to borrowing base certificates, field examination reports, or other ABL-specific collateral reporting. If Greystone insists on some form of collateral reporting, a potential compromise would be to provide only a quarterly summary of ABL availability (without the underlying detail), subject to appropriate confidentiality restrictions.
VI. Practical and Timing Considerations
A. Sequencing of Negotiations
As noted above, the ABL term sheet with Ridgeline has not yet been finalized. Multiple outstanding issues remain with respect to collateral eligibility criteria, advance rates, the composition and methodology of the borrowing base, and certain financial covenant thresholds. These issues are being addressed in ongoing negotiations and are the subject of our separate term sheet markup delivered on February 14, 2022 and the revised term sheet received from Ridgeline on February 28, 2022.
In addition, Bellweather Appraisal Group LLC, the field examination firm retained by Ridgeline, is expected to commence its preliminary field examination of Meridian's receivables and inventory in early March 2022. The results of the field examination may materially affect the borrowing base structure, collateral eligibility criteria, and advance rates under the Proposed ABL Facility. Until the field examination results are available and incorporated into the ABL term sheet, certain elements of the intercreditor structure — particularly the definitions of ABL Priority Collateral and the treatment of specific asset categories — may remain in flux.
Recommendation: We recommend deferring formal engagement with Greystone on the ICA until the ABL term sheet with Ridgeline is substantially agreed. Premature initiation of ICA negotiations creates the following risks:
(i) Negotiating intercreditor terms that may be rendered moot by subsequent changes in the ABL structure, particularly if the field examination results lead to material revisions to the borrowing base or collateral definitions;
(ii) Incurring unnecessary legal costs, both for Meridian's account (Calderwood & Harkness fees) and potentially for Greystone's account (if Meridian is required to reimburse Greystone's legal expenses in connection with the consent process); and
(iii) Giving Greystone premature insight into deal dynamics, including the economics of the Proposed ABL Facility and the status of negotiations with Ridgeline, which could affect Greystone's negotiating posture on the ICA.
Exception: If Ridgeline insists on evidence of Greystone's formal consent as a condition to advancing the ABL process beyond the term sheet stage — for example, if Ridgeline requires a Greystone consent letter or a signed letter of intent regarding the ICA before committing to proceed to definitive documentation — Meridian may need to commence ICA discussions on an earlier timeline. We will coordinate with Catherine Royce and Benjamin Nakamura at Whitfield Ames to monitor Ridgeline's expectations regarding the sequencing of the ICA relative to the broader ABL closing process.
B. Estimated Timeline
Assuming the ABL term sheet with Ridgeline is finalized in late March or April 2022, we estimate the following timeline for negotiation and execution of the ICA:
Total estimated timeline: 6–8 weeks from initiation of drafting to final execution. This timeline assumes reasonably prompt turnaround by all parties and no material disputes on fundamental structural issues. If the parties disagree on significant terms — particularly the bankruptcy provisions, the standstill period, or the IP license — the timeline could extend by two to four additional weeks.
C. Greystone Consent Fees / Amendments
It is common practice for the existing lender in a split-collateral arrangement to require a consent fee or amendment fee in connection with its agreement to the ICA and any amendments to the existing credit agreement. Greystone may seek such a fee as consideration for its agreement to subordinate its first-priority lien on receivables, inventory, and deposit accounts and to enter into the ICA.
Based on market practice in comparable transactions, consent fees in this context typically range from 10 to 25 basis points of the outstanding term loan balance. Applied to the current outstanding balance of approximately $61,500,000, this yields a consent fee range of:
• Low end (10 bps): $61,500,000 × 0.10% = $61,500
• High end (25 bps): $61,500,000 × 0.25% = $153,750
Meridian should budget for this expense as part of the overall transaction costs associated with the Proposed ABL Facility. The Company and Brindoval should discuss whether the consent fee will be borne entirely by Meridian at the operating company level or whether Brindoval will contribute to or share the cost, particularly if the consent fee is at the higher end of the range.
In addition to the consent fee, Meridian should anticipate that Greystone will seek reimbursement of its reasonable legal fees and expenses incurred in connection with the review and negotiation of the ICA and any conforming amendments. Such expense reimbursement obligations are typically included in the Existing Term Loan credit agreement and may be triggered by the consent/amendment process.
VII. Summary of Recommendations
Based on our analysis of the foregoing issues, we summarize our preliminary recommendations as follows:
1. Do not initiate formal ICA negotiations with Greystone until the ABL term sheet with Ridgeline is substantially finalized. The informal confirmation from Alan Fitzpatrick (per his email of February 8, 2022) provides sufficient assurance of Greystone's willingness to engage for the current stage of negotiations.