Meridian Logistics Ltd: What do you do with this request?

// DRILLS / ISSUE 05 / MERIDIAN

IN HIGHBANK ISSUE 05 · 2026-08-18 · 6 MIN READTHE SENIOR READ — MICHAEL

Meridian Logistics

THE CONCENTRATION REQUEST

LOGISTICS · CONCENTRATION · DIFFICULTY 3/5

// FACILITY REQUEST

RequestedUS$6.0m term

Purpose18 linehaul units + DC fitout

ServesOne customer's new contract

Contract5 years · 90-day break

Decision byContract start, next quarter

You have ten minutes. What do you do?

Read the file

// ONE FILE, THREE CHAIRS

// THE LENDING CHAIR · ISSUE 05

Meridian Logistics

You are here

// THE MD'S CHAIR

The Ninety Days

Read from this chair →

// THE CUSTOMER'S CHAIR

Everyone Signs It

Read from this chair →

// THE SETUP

Meridian Logistics is a second-generation third-party logistics operator — linehaul and warehousing, revenue US$52m, disciplined operators with a clean nine-year file. Two years ago their largest customer, a national grocery chain, was 31% of revenue. Then Meridian won the chain's renewed national distribution contract, and that number is now 58% — and climbing as the contract volumes step up.

The MD is asking for US$6.0m of term debt: eighteen additional linehaul units and the fit-out of a dedicated distribution centre, all of it to serve the new contract. The contract is five years, with volume commitments — and a 90-day termination-for-convenience clause that the chain's procurement team declined to negotiate away. "Everyone signs it," the MD says, accurately.

The margin on the renewed contract is thinner than the one it replaced — procurement did its job. The relationship manager notes the customer is investment-grade and the revenue is contracted. You're on the credit committee when the file lands.

You have the financials. You have ten minutes. What do you do?

// FY25 SNAPSHOT

SOURCE: COMPANY-PREPARED · UNAUDITED · COMPOSITE CASE — FICTIONAL

REVENUE

US$52m

▲ +21% (2yr)

TOP CUSTOMER

58%

▲ from 31%

CONTRACT

5 years

90-day break clause

EBITDA MARGIN

8.2%

▼ −90 bps on renewal

FLEET AGE

6.8 years

▲ replacement deferred

Read it against its own file first: two years ago the top customer was 31% of revenue, and last year's margin, 9.1%, was before the renewal took 90 basis points of it. Dedicated-contract capex is conventionally amortised inside the contract term.

// THE FILE

THREE YEARS OF ACCOUNTS · US$000 · FY23–FY25

FY25 is the year just closed, the first on the renewed grocery contract. Figures in US$000. Operating cash flow is after interest and tax paid; debtor days are on revenue, stock and creditor days on cost of sales. A composite borrower: the accounts belong to no real company.

THE FACILITIES

Fleet loans, 2019–2021The last of the fleet finance ran off in FY25. Since then the fleet has aged to 6.8 years with replacement deferred.: NOWRepaid; REQUESTED—
Term loan — fleet and fit-out18 linehaul units, US$4.5m, and the distribution-centre fit-out for the contract, US$1.5m. The split is the file's; the drill gives the total.: NOW—; REQUESTEDUS$6.0m
Security and covenantsNo guarantees. A clean nine-year relationship, transactional banking only today.: NOWGeneral security agreement; no covenants since the fleet loans repaid; REQUESTEDTo be set with the loan

PROFIT AND LOSS

Profit and loss, US$000, by year.
Line	FY23	FY24	FY25
Revenue	43,000	47,500	52,000
Direct operating costs	(33,540)	(37,050)	(40,820)
Gross profit	9,460	10,450	11,180
Overheads	(5,461)	(6,127)	(6,916)
EBITDA	3,999	4,323	4,264
Depreciation	(2,300)	(2,150)	(2,000)
EBIT	1,699	2,173	2,264
Interest	(120)	(60)	(15)
Profit before tax	1,579	2,113	2,249
Tax	(442)	(592)	(630)
Net profit after tax	1,137	1,521	1,619

BALANCE SHEET AT YEAR-END

Balance sheet at each year-end, US$000.
Line	FY23	FY24	FY25
Cash	1,719	2,341	3,206
Receivables	4,477	5,076	5,699
Inventory	551	609	671
Current assets	6,747	8,026	9,576
Fleet and equipment	10,600	9,150	7,750
Total assets	17,347	17,176	17,326
Trade payables	2,940	3,248	3,579
Revolver (drawn)	0	0	0
Fleet loans	1,400	600	0
Total liabilities	4,340	3,848	3,579
Shareholders' equity	13,007	13,328	13,747

CASH FLOW

Cash flow, US$000, by year.
Line	FY23	FY24	FY25
EBITDA	3,999	4,323	4,264
Increase in working capital	(118)	(349)	(354)
Interest paid	(120)	(60)	(15)
Tax paid	(442)	(592)	(630)
Operating cash flow	3,319	3,322	3,265
Capital expenditure	(900)	(700)	(600)
Dividends	(1,200)	(1,200)	(1,200)
Fleet loans drawn / (repaid)	(1,000)	(800)	(600)
Revolver drawn / (repaid)	0	0	0
Net change in cash	219	622	865

RATIOS FROM THE STATEMENTS ABOVE

Ratios computed from the three statements, by year.
Ratio	FY23	FY24	FY25
Revenue growth	—	10.5%	9.5%
EBITDA margin	9.3%	9.1%	8.2%
Operating cash flow ÷ EBITDA	83.0%	76.8%	76.6%
Debtor days (on revenue)	38	39	40
Stock days (on cost of sales)	6	6	6
Creditor days (on cost of sales)	32	32	32
Cash conversion cycle, days	12	13	14
Total debt ÷ EBITDA	0.4×	0.1×	0.0×

THE REST OF THE FILE · SECURITY · COVENANTS · DEBTORS · BUDGET

As the file stood when the request arrived: FY25 management accounts for the year just closed, FY23 and FY24 audited, the FY26 budget approved by the board. What a bank has on file beyond the accounts — enough to write a full credit paper on. A composite borrower: none of it belongs to a real company.

OWNERSHIP, PEOPLE, PREMISES

60% The MD's family trust — The second generation; the shares came across from the founder in stages over the last ten years
40% The founder's family trust — The first generation, retired from management; a non-executive director, and owner of the South Auckland depot

Managing director.: Second generation; ran the linehaul operation before taking over. Led the renewal with the grocery chain and holds that relationship.
Finance manager.: A chartered accountant. Monthly management accounts go to the board, by division: linehaul and warehousing.
Operations manager.: Runs the fleet, the workshop and the depots; keeps the fleet list and the maintenance records.

All leased. The head office, workshop and linehaul depot in South Auckland belong to the founder's family trust and are let at a rent set by an independent valuer. A cross-dock depot in Christchurch and warehouses in South Auckland and Palmerston North are let by unrelated landlords. The Palmerston North warehouse, with six years left on its lease and one right of renewal, is the building the fit-out would dedicate to the grocery chain. About 240 staff, most of them drivers and warehouse staff.

FACILITIES AND PRICING

Fleet loans, 2019–2021: Three four-year loans, all repaid. The last, US$2.88m drawn in 2021, paid its final instalment in M10 of FY25Fixed; the last at 5.50%Monthly instalments. Two covenants, which fell away with the last repayment
Transactional banking: Operating and payroll accounts, and business cardsAccount and card fees
The request: A US$6.0m term loan: 18 linehaul units, US$4.5m, and the distribution-centre fit-out, US$1.5mNot yet discussedAsked for over five years, the contract's term, drawn at the contract start next quarter

SECURITY

General security agreement: Over all present and after-acquired property of Meridian Logistics Ltd, first-ranking, registered with the first fleet loan in 2019. Still in place, with nothing drawn against it.
The fleet: 84 powered units and 120 trailers, owned outright. No finance company holds a charge over any of them.
Guarantees: None.

COVENANTS, TESTED ON THE AUDITED ACCOUNTS

Each covenant, its level, and the result in each of the three years.
Covenant	FY23	FY24	FY25
Debt service cover (EBITDA to interest and scheduled principal) At least 1.5×	3.6×	5.0×	—
Total debt to EBITDA No more than 2.5×	0.4×	0.1×	—

While the fleet loans ran: audited accounts within 120 days of year-end, with a certificate of both covenants. Every certificate arrived on time and every instalment was paid on its date.
No test on FY25: the covenants belonged to the fleet loans and fell away with the last instalment, in M10.
Nothing is required today. The FY25 management accounts came with the request; the audited accounts follow within 120 days of the year-end.
Nine years with the bank: no dishonoured payment, reviews on time.

DEBTORS AT THE FY25 YEAR-END

The debtors ledger by age, with each band's share of the total.
The grocery chain — not yet duePaid on the 20th of the month following invoice	US$2.89m	51%
Other customers — within terms30 days from invoice	US$2.05m	36%
Other customers — up to 30 days past terms	US$0.58m	10%
Other customers — 31–60 days past terms	US$0.14m	2%
Other customers — over 60 days past termsOne fuel-surcharge invoice, disputed by a spot customer; not provided	US$0.04m	1%
Total, as in the balance sheet	US$5.70m

CUSTOMERS

The national grocery chainInvestment-grade. The renewed national distribution contract: linehaul and warehousing, five years from next quarter, 90 days' termination for convenience: 58%; 63%
A beverage distributorInter-island linehaul; a two-year contract with a year to run; 30 days: 9%; 8%
A building-supplies merchantLinehaul on a rate card, no fixed term; 30 days: 7%; 6%
About forty other customersContract and spot linehaul, and warehousing for smaller clients; 30 days: 26%; 23%

REVENUE BY CUSTOMER, THREE YEARS

The grocery chain: FY23US$13.33m; FY24US$17.10m; FY25US$30.16m
All other customers: FY23US$29.67m; FY24US$30.40m; FY25US$21.84m
The chain's share: FY2331%; FY2436%; FY2558%
Revenue: FY23US$43.00m; FY24US$47.50m; FY25US$52.00m

FY25 is the first year on the renewed rates, with the chain's regions moving across in stages. Two contract accounts ended in FY25 — one re-tendered to another operator, one taken back in-house — and spot work was cut back as trucks went onto the chain's volumes.

THE GROCERY CONTRACT

Counterparty: AS SIGNEDA national grocery chain; investment-grade
Won: AS SIGNEDAt the chain's re-tender last year, early in FY25. Meridian carried part of the chain's distribution under the contract before; the renewal widened it
Term: AS SIGNEDFive years from the contract start next quarter, when the dedicated distribution centre opens
Scope: AS SIGNEDLinehaul across the chain's national network, and warehousing for it in a dedicated distribution centre
Volumes: AS SIGNEDCommitted weekly volumes by lane, on a rate card
Price: AS SIGNEDRates 90 basis points cheaper than the contract they replaced. Fuel passed through monthly; rates reviewed each year against a cost index
Service levels: AS SIGNEDFull capacity from the first day of the term; credits against invoices for missed delivery windows
Termination: AS SIGNEDThe chain may end the contract for convenience on 90 days' notice — its standard clause. The MD asked once, during the renewal, for longer, and was declined
On termination: AS SIGNEDPayment for services delivered to the date. The contract makes no provision for the fit-out
Payment: AS SIGNEDThe 20th of the month following invoice

THE FLEET AT THE FY25 YEAR-END

Linehaul tractor units14 of them more than ten years old: UNITS58; AVERAGE AGE7.1 years; HELDOwned
Rigid trucksRegional and store delivery: UNITS26; AVERAGE AGE6.1 years; HELDOwned
Powered fleet: UNITS84; AVERAGE AGE6.8 years; HELDOwned outright

The 6.8 years in the file is the powered fleet's. Beside it: 120 trailers, owned, averaging nine years; 34 forklifts on operating leases; about a dozen owner-drivers on regular subcontract runs.

THE REQUEST, AS QUOTED

18 linehaul tractor unitsThe same make and specification as the current fleet, set up for B-train work; US$0.25m each: COSTUS$4.50m
Racking and mezzanineLaid out to the chain's store-order pick profile: COSTUS$0.62m
Conveyor and sortationSorting to the chain's store delivery sequence: COSTUS$0.38m
Chilled roomsPart of the warehouse converted for the chain's chilled lines: COSTUS$0.30m
Systems integrationThe warehouse system linked to the chain's ordering and replenishment: COSTUS$0.20m
The request: COSTUS$6.00m

Dealer and supplier quotes, attached to the request.

THE OPERATING ACCOUNT, MONTH-END BY MONTH-END

M1: IN CREDITUS$2.52m
M2: IN CREDITUS$2.76m
M3: IN CREDITUS$2.29m
M4: IN CREDITUS$2.41m
M5: IN CREDITUS$2.70m
M6: IN CREDITUS$2.98m
M7: IN CREDITUS$3.15m
M8: IN CREDITUS$2.96m
M9: IN CREDITUS$2.56m
M10: IN CREDITUS$2.85m
M11: IN CREDITUS$3.12m
M12: IN CREDITUS$3.21m

Nothing is lent, so there is no limit to run against. In credit at every month-end, the lowest at M3 after the first half of the year's dividend. The last fleet-loan instalments and US$1.20m of dividends were paid from it.

MANAGEMENT'S BUDGET FOR THE YEAR AHEAD

Revenue: ACTUALUS$52.0m; BUDGETUS$57.0m
The grocery chain's share: ACTUAL58%; BUDGET63% — the contract at full volume from next quarter
EBITDA margin: ACTUAL8.2%; BUDGET8.5%
EBITDA: ACTUALUS$4.26m; BUDGETUS$4.86m
Interest: ACTUALUS$0.02m; BUDGETUS$0.31m — the new loan at an assumed 7.5%
Working capital added: ACTUALUS$0.35m; BUDGETUS$0.19m — the FY25 cycle on the extra sales
Operating cash flow: ACTUALUS$3.27m; BUDGETUS$3.78m
Capital spending: ACTUALUS$0.60m; BUDGETUS$6.70m — the request, and US$0.70m of routine spending
Term debt: ACTUALUS$0.60m repaid; BUDGETUS$6.00m drawn at the contract start; US$0.90m repaid
Dividends: ACTUALUS$1.20m; BUDGETUS$1.20m
Cash at year-end: ACTUALUS$3.21m; BUDGETUS$4.19m

LAST YEAR'S BUDGET, AGAINST WHAT ARRIVED

Last year's budget against the actual result, line by line.
Line	BUDGET	ACTUAL
Revenue	US$50.5m	US$52.0m
The grocery chain's share	52%	58%
EBITDA margin	9.0%	8.2%
Capital spending	US$2.40m	US$0.60m

WHAT IS STILL NOT IN THE FILE

A real file would also hold these. A paper that says which of them it needs before approving, and why, is reading the file properly.

Valuations of the eighteen units and of the fit-out — the file has dealer and supplier quotes only.
The chain's service-level reports for FY25, and any credits it has taken against invoices.
The Palmerston North lease itself: what the landlord allows to be installed, and what must be taken out at the end.
The fleet list unit by unit — kilometres, maintenance cost, and what the older units would fetch.
A month-by-month cash forecast for the contract's first year, rather than a year-end budget.

DOWNLOAD THE FILE · XLSX

With the rest of the file above, this one is complete enough for a full credit paper. Write one, and the first three sent in are read free, the way the senior reads here are written — how the pilot works.

// YOUR JUDGMENT

What do you do with this request?

[A]Approve as requested — the revenue is contracted and the counterparty is investment-grade[B]Approve, but structure to the contract's real shape: amortisation inside the contract term, generic assets funded fully, dedicated fitout conservatively[C]Approve half, with a diversification covenant requiring top-customer share below 45% within two years[D]Decline — the concentration is disqualifying at this scale

This drill needs JavaScript: the options above cannot be selected without it, and the senior banker's reading stays hidden. Turn JavaScript on and reload the page to take the drill.

// THE READING

Concentration is not a linear risk, and that is the first thing to hold onto. A customer moving from 31% to 58% of revenue has not "roughly doubled" the exposure — it has changed what the business is. Below a third, losing the customer is a bad year. Above half, losing the customer is a solvency event, which means the customer now holds something close to a veto over the borrower's existence, and both parties' procurement teams know it. Read the margin line with that in mind: 90 basis points given up on renewal is not a pricing detail. It is the customer already exercising the power the concentration gives it, politely, on schedule, every negotiation from now on.

But name the actual risk precisely, because it is not the customer's credit. The chain is investment-grade; it will pay its invoices. The risk is the asymmetry of commitment: Meridian is being asked to hold five-year assets against a relationship the other side can leave in ninety days. Eighteen linehaul units and a dedicated distribution centre are not the same kind of asset. Tractor units are generic — if the contract dies, they haul for someone else at a discount. Racking, automation, and fit-out configured to one customer's network are worth something close to scrap the day the notice letter arrives. The US$6.0m request bundles both kinds as if commitment were symmetrical. It is not, and the fleet-age line adds a quiet tell: at 6.8 years, part of this "growth capex" is really deferred replacement wearing the new contract's jersey.

The reader's favourite answer is C — approve half, and covenant the borrower to diversify below 45% within two years. It sounds like risk management. It is fiction, twice over. A diversification covenant orders a mid-size logistics operator to conjure US$15m of new revenue from customers who do not currently exist — you cannot covenant demand into being, and when the covenant is inevitably breached the bank will waive it, teaching the borrower that covenants are decoration. And funding half the capex is worse than funding none: the contract's service levels require the full capacity, so the half-loan finances a breach of the very contract the repayment depends on. D at least has the courage of its convictions — but declining concentration outright, in a sector whose mid-market is structurally concentrated, is a decision to exit NZ logistics, which is a portfolio call, not a file call.

The senior banker's read is B: lend to the shape of the commitment, not the shape of the request. The generic assets — funded fully, five-year amortisation, standard security. The dedicated fit-out — funded conservatively and amortised inside thirty-six months, so the exposed tail of the loan never outlives the notice period's practical runway. Quarterly reporting on contract margin, not just revenue, because the margin line is where the customer's power will show first. And one honest conversation with the MD: the 90-day clause means the bank is underwriting Meridian's operational indispensability — the cost of replacing them — rather than the paper. The structure doesn't remove the concentration. Nothing removes the concentration. It makes sure that if the asymmetry is ever exercised, it wounds the borrower instead of killing it — and that the bank financed a survivable bet rather than co-signing an existential one.

THE NUMBERS THE READING USED

RevenueP&L · FY23 → FY25: US$43.0m → US$52.0m; Up 21% in two years — most of it from one customer.
Top customer's share of revenueTHE SETUP: 31% → 58%; Concentration nearly doubled in two years, on a contract that can end on 90 days' notice.
EBITDA marginRATIOS · FY24 → FY25: 9.1% → 8.2%; Ninety basis points given up on the renewal: the customer's pricing power, in the accounts.
New revenue to take the customer under 45%58% × FY25 REVENUE ÷ 45% − FY25 REVENUE: US$15.0m; Option C's covenant asks the business to find this much new work elsewhere in two years — about 29% growth outside the one relationship it depends on.
Fleet and equipmentBALANCE SHEET: US$10.6m → US$7.8m; Depreciation has outrun capital expenditure for three years. Some of the new units are catch-up, not growth.
DebtBALANCE SHEET · FACILITIES: Nil at FY25; The request is the whole of the bank's exposure, and the cash that repays it depends on one customer. Hence the structure: generic trucks funded normally, the dedicated fit-out paid off inside the break-clause risk.

Every figure above is in the file appendix before the question — open THE FILE and redo it.

A big enough customer is a term of the loan nobody negotiated.

// THE SAME FILE, FROM TWO OTHER CHAIRS

The same file, read by the two people with the most riding on it. Each has one decision to make, and neither has the bank's lever.

// THE MD'S CHAIR

The Ninety Days

The bank funded the trucks for five years and the fit-out for three, and told you it is lending to how hard you are to replace. What do you do with that?

Read from this chair →

// THE CUSTOMER'S CHAIR

Everyone Signs It

Your logistics supplier is borrowing US$6m to serve you, and its bank has priced your ninety-day clause. Everyone signs it. Should you keep it?

Read from this chair →

// HOW READERS ANSWER

The senior banker's read is [B].

Early days. The distribution appears here once enough readers have answered.

The tempting answer is C. The senior banker chose B. The reading explains why the diversification covenant is fiction — and what the 90-day clause means the bank is actually underwriting.