First National Capital, an independent provider of capital equipment and project financing in North America, provided $22 million in equipment financing to a packaging and printing company, funding the digital press and finishing equipment required to fulfill a major new contract with a blue-chip customer.
Fulfilling the contract meant a $22 million investment in equipment carrying a 12-month lead time, committed by a company operating with debt service coverage of roughly 1.2x, little cash on the balance sheet and limited liquidity availability. At the same time, the company was bringing in a new equity partner and retiring a group of preferred equity shareholders, and its senior lender had to agree to additional external debt in the middle of that transition.
The transaction grew out of a relationship First National had built with the company over nearly three years. Before committing, First National’s team visited the operation and came away confident in management’s ability to execute the contract. The firm provided $22 million for the long-lead-time equipment, structured with progress payments through the build and installation period so the company could preserve cash flow during ramp-up rather than fund equipment ahead of contract revenue. First National worked directly with the incoming equity partner to create a seamless transition, coordinated with the senior lender to align the new equity and the new debt, and worked with the equipment vendor to give it confidence that the financing would close and that it would be paid.
“On paper, this was a company with 1.2 times coverage, no cash, and a year of waiting before the equipment earned a dollar. In reality, it was a management team that had just won the kind of contract that changes a business,” Philip Gronnerud, senior vice president and co-founder of First National Capital, said. “We had known this company for almost three years. We had been in their plant. We understood what the new customer meant and what the new equity meant. So the question was never whether to lend. It was getting the senior lender, the incoming investors, and the equipment manufacturer moving in the same direction, and funding the build so cash flow survived the ramp. That is what a capital partner does that a credit scorecard can’t.”
