Company overview
Granite Ridge Supply distributes lumber, roofing, siding and windows to home builders and contractors from nine yards across Georgia and the Carolinas. It is owned by two families and its management. Margins are thin, as for most distributors, and earnings move with lumber prices: FY2022 was a record year when prices spiked, and EBITDA fell by almost a third in FY2023 when they came down.
The company is asking for a $60M asset-based revolving credit facility (ABL) to replace its bank revolver, with $38M drawn at closing. Unlike a cash-flow loan, an ABL is sized on collateral: Granite Ridge can borrow up to a set percentage of its eligible receivables and inventory, calculated every month in a borrowing base certificate. Usage rises each spring as the company stocks up for the building season.
Receivables have been taking longer to collect (from 52 days of sales in FY2022 to 60 days in FY2025), and the largest builder customer accounts for 14% of receivables.
The IC question: is the collateral good enough to lend against, what happens to the borrowing base and the company's liquidity if lumber prices fall and builders pay more slowly, and do the ABL protections kick in early enough?
Your memo should answer
- 01Would you provide this facility? State your recommendation and the main reasons.
- 02What are the two or three most important risks for an asset-based lender here?
- 03Calculate the borrowing base and availability at closing and at the seasonal peak, interest cost, and fixed charge coverage. Assume SOFR of 4.0%.
- 04Build a downside case: lumber prices fall 25% (cutting eligible inventory) and revenue and receivables fall 15%. What happens to the borrowing base, availability, the springing covenant and cash dominion?
- 05Do the advance rates, eligibility rules, reserves, springing covenant and reporting protect the lender? What would you change?
Financials ($M)
| FY2022 | FY2023 | FY2024 | FY2025 | |
|---|---|---|---|---|
| Revenue | 310 | 295 | 302 | 318 |
| EBITDA | 24.8 | 17.7 | 18.1 | 20.7 |
| EBITDA margin | 8.0% | 6.0% | 6.0% | 6.5% |
| Capex | 2.4 | 2.6 | 2.5 | 2.5 |
| Cash taxes | 3.6 | 1.9 | 1.6 | 1.8 |
| Receivables, days of sales | 52 | 55 | 57 | 60 |
| Inventory, days of cost of goods | 63 | 66 | 68 | 71 |
Term sheet
- Facility
- $60M asset-based revolving credit facility; $38M drawn at closing to repay the bank revolver
- Security
- First lien on receivables, inventory and cash; second lien on equipment and real estate
- Borrowing base
- 85% of eligible receivables plus 65% of eligible inventory at cost, less reserves (currently a $1.5M rent reserve for leased yards); capped at $60M
- Eligibility
- Excludes receivables over 90 days past invoice, amounts owed back to customers (contras), any customer's balance above 15% of total receivables, and slow-moving or in-transit inventory
- Tenor
- 5 years (2031)
- Pricing
- SOFR + 225 bp on drawn amounts; 0.375% a year on unused commitments
- Springing covenant
- Minimum fixed charge coverage of 1.0x, tested only when availability is below 12.5% of the commitment ($7.5M)
- Cash dominion
- Customer collections are swept daily to repay the revolver when availability is below 15% of the commitment ($9.0M)
- Reporting and audits
- Monthly borrowing base certificate (weekly if availability is below $9.0M); field exams twice a year; inventory appraisal once a year
- Pricing context
- ABL revolvers for middle-market distributors recently priced at SOFR + 175 to 275 bp
Borrowing base at closing ($M, June 30, 2026)
- Gross receivables
- 52.0
- Less: ineligible (over 90 days, contras, concentration over 15%)
- (6.4)
- Eligible receivables
- 45.6
- Gross inventory at cost
- 48.0
- Less: ineligible (slow-moving, in transit)
- (7.0)
- Eligible inventory
- 41.0
- Inventory appraisal
- Net orderly liquidation value about 70% of cost
- Seasonal peak usage
- About $45M drawn in April–May in each of the last three years
Customers and markets (FY2025)
- Largest customer
- A regional home builder: 9% of sales, 14% of receivables
- Top ten customers
- 31% of sales
- Product mix
- Lumber and panels 45% of sales; roofing 20%; siding and windows 25%; other 10%
- Lumber prices
- Framing lumber fell about 40% from its 2022 peak; prices have moved 20–30% within a year several times since 2020