ABL Series, Blog 3: When the Stars Align (and When They Don’t)
Not every deal is a slam dunk in private credit—and especially in asset-based lending. But every deal does tell a story. Some are thrillers, some are cautionary tales, and the best ones have a bit of both.
Today, we’re taking you inside a recent US$7 million financing we completed and explaining why it checked the boxes for us. We’ll also contrast it with a similar opportunity we passed on—not because we’re picky (well, we are), but because discernment is the difference between consistent returns and costly surprises in this space.
A Deal We Liked:
$7M in Refinancing Relief for a Stressed-but-Strong Operator
This one had all the hallmarks of a good ABL transaction: a motivated borrower, seasoned management, and a clear path to liquidity.
The Opportunity:
- US$6 million revolver secured by accounts receivable and inventory
- US$1 million term loan secured by equipment
- Total package: US$7 million
- Use of proceeds: Refinance a fatigued incumbent lender, clean up stretched payables, and restore liquidity
Why We Moved Forward:
- Experienced Operators – The management team wasn’t new to ABL. They understood borrowing base reporting, field exams, and appraisals. That fluency matters—it reduces friction and risk.
- Motivated Counterparty – With penalty fees looming and their prior lender eager to exit, the company had every reason to close efficiently. That alignment of urgency made for a smoother process.
- Collateral Was There – The business had ample AR and inventory to backstop the revolver. Equipment secured the term piece. Our loan not only refinanced the incumbent but left breathing room for operations. Win-win.
- Simple Structure – One secured lender (us) and a recently supportive shareholder who injected $1.5M. No over-complicated stack, no surprise mezzanine.
- Legacy with Legs – The company had been in business for 35+ years, with long-term customer relationships, sticky revenues, and a clear reason to exist. That kind of foundation matters when evaluating forward risk.
But Nothing’s Ever Perfect
The company had just completed a lengthy, messy restructuring. The good news was that the worst was behind them—unprofitable foreign subs were shut down, and the path forward looked cleaner.
Customer concentration was high. However, the key client was large, creditworthy, and had a long history with the business.
Dilutive short payments were a recurring issue from one major client. However, we gained comfort from management’s track record in successfully disputing and recovering those funds.
Some receivables were extended up to 150 days. This is usually a red flag, but it was mitigated by the quality and size of the debtors. Also, it is important to note that it was a micro-cap public company with some SEC issues. We dug in during diligence and got comfortable—with legal counsel in the mix every step of the way.
Bottom line
Despite a few quirks (show me a deal without them), this was a classic example of ABL working the way it should—unlocking liquidity where there’s real value.
One We Didn’t Love: When the Numbers Don’t Add Up
Compare that with another file we passed on—a $2.3 million refinancing request from a logistics company with ~$40M in annual revenue. At first glance, it seemed promising. But once we got under the hood, the issues stacked up fast.
What Didn’t Work:
- Tight Collateral Coverage – Only $2M in AR and $1M in inventory and that is before considering aging ssues and contra accounts. It wasn’t enough to cover their current facility and provide a cushion.
- Held Cheques – A classic red flag. By holding cheques, AP appears smaller than it is, creating the illusion of liquidity. We’ve seen this before—it never ends well.
- Negative Tangible Equity – A strained balance sheet with few levers left to pull.
- Operational Turbulence – Recent losses tied to a customer exit and an employee fraud event. Sure, businesses hit bumps—but you need some dry powder (or at least dry paperwork) to recover. This one felt a little too soggy.
The Takeaway
In ABL, you’re not just lending against assets—you’re underwriting behavior, decision-making, and alignment. We love when the numbers make sense, but we need the story to line up too.
For the right companies—especially those navigating a turnaround—ABL can be a powerful tool to regain control. But it’s not a lifeline for every borrower. As investors, knowing when to say yes (and when to politely walk away) is what protects capital and produces returns.
