Company overview
Northfield Packaging is a privately owned maker of rigid plastic containers for food and household-products customers, with four plants in Ohio, Indiana and Wisconsin. The top three customers are 38% of revenue; the largest is 17%.
Resin (polypropylene and HDPE) is about 45% of cost of goods sold. Contracts pass through resin costs with a 60–90 day lag. In FY2022 a resin price spike compressed EBITDA margin to 11.9% before pass-throughs caught up.
The sponsor-owned company is seeking a $150M first-lien term loan to refinance its existing $120M term loan and fund a $30M line expansion at its Indiana plant. Total funded debt after the deal would be $315M including a $165M existing second-lien note that stays in place.
Your memo should answer
- 01Would you approve this loan? State your recommendation and the main reasons.
- 02What are the two or three most important credit risks?
- 03Calculate pro forma leverage, interest coverage and free cash flow. Assume SOFR of 4.0% and an 8.5% coupon on the second-lien notes.
- 04Build a downside case. What happens to leverage and covenant headroom?
- 05Do the covenants and terms protect the first-lien lender? What would you change?
Financials ($M)
| FY2022 | FY2023 | FY2024 | FY2025 | |
|---|---|---|---|---|
| Revenue | 395 | 410 | 445 | 468 |
| EBITDA | 47 | 58 | 66 | 70 |
| EBITDA margin | 11.9% | 14.1% | 14.8% | 15.0% |
| Capex | 16 | 18 | 20 | 21 |
| Cash taxes | 4 | 5 | 6 | 6 |
| Change in working capital | (9) | (2) | (4) | (3) |
Term sheet
- Facility
- $150M first-lien term loan
- Tenor
- 5 years (matures 2031); second-lien notes mature 2030
- Pricing
- SOFR + 575 bps, 1.0% SOFR floor, 98.5 OID
- Amortization
- 1% per year
- Pro forma total leverage
- 4.5x FY2025 EBITDA ($315M / $70M)
- Financial covenants
- Max total net leverage 5.25x, stepping to 4.75x after 24 months; min fixed charge coverage 1.15x
- Other terms
- Unlimited restricted payments when total leverage < 4.0x; $25M incremental facility