Pacific Premium Foods Ltd: What do you do with this request?

// DRILLS / ISSUE 01 / PACIFIC PREMIUM

IN HIGHBANK ISSUE 01 · 2026-04-28 · 5 MIN READTHE SENIOR READ — MICHAEL

Pacific Premium Foods

THE WORKING CAPITAL REQUEST

MANUFACTURING · WORKING CAPITAL · DIFFICULTY 2/5

// FACILITY REQUEST

ExistingUS$3.5m revolver

RequestedUS$5.0m revolver

IncreaseUS$1.5m

TenorAnnual review, rolling

Decision byFriday, end of week

You have ten minutes. What do you do?

Read the file

// ONE FILE, THREE CHAIRS

// THE LENDING CHAIR · ISSUE 01

Pacific Premium Foods

You are here

// THE FOUNDER'S CHAIR

The Shape of the Money

Read from this chair →

// THE SUCCESSOR'S CHAIR

The Numbers You Inherit

Read from this chair →

// THE SETUP

Pacific Premium Foods is a 15-year-old NZ-based specialty food manufacturer — premium ready meals supplied to supermarkets and food service across the North Island. Family-owned. Founder-MD still operational, second-generation taking on commercial responsibility over the past three years. Annual revenue US$42m.

The MD called the relationship manager on Monday. He's asking for a US$1.5m increase to the working capital facility — taking it from US$3.5m to US$5m — to support what he calls 'the best run yet.' Revenue has grown from US$28m two years ago to US$42m today. He wants an answer by Friday so the additional draw is available for next month's procurement cycle.

The MD has been a reliable client for six years. Conduct on account is clean. No covenant breach. Annual reviews completed on time. The relationship manager is supportive of the increase. You're sitting on the credit committee when the file lands on your desk.

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

// FY25 SNAPSHOT

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

REVENUE

US$42m

▲ +50% (2yr)

EBITDA MARGIN

▼ -210 bps

OCF

-US$0.6m

▼ flipped negative

DSO

82 days

▲ +34 days

INVENTORY

US$3.8m

▲ +138%

Read it against its own file first: two years ago, before the growth, customers paid in 48 days and the business generated cash.

// THE FILE

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

FY25 is the year just closed. FY24 is the year the two supermarket accounts that pay at 90 days came in. 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

Working capital revolverAnnual review, rolling; covenants clean; the founder's personal guarantee behind it. Answer wanted by Friday.: NOWUS$3.5m limit · fully drawn; REQUESTEDUS$5.0m limit

PROFIT AND LOSS

Profit and loss, US$000, by year.
Line	FY23	FY24	FY25
Revenue	28,000	35,000	42,000
Cost of sales	(15,340)	(18,500)	(21,670)
Gross profit	12,660	16,500	20,330
Overheads and trade spend	(9,552)	(13,000)	(16,550)
EBITDA	3,108	3,500	3,780
Depreciation	(1,000)	(1,050)	(1,100)
EBIT	2,108	2,450	2,680
Interest	(120)	(190)	(270)
Profit before tax	1,988	2,260	2,410
Tax	(557)	(633)	(675)
Net profit after tax	1,431	1,627	1,735

BALANCE SHEET AT YEAR-END

Balance sheet at each year-end, US$000.
Line	FY23	FY24	FY25
Cash	1,600	1,740	840
Receivables	3,682	6,329	9,436
Inventory	1,597	3,200	3,800
Current assets	6,879	11,269	14,076
Plant and equipment	7,900	7,450	6,650
Total assets	14,779	18,719	20,726
Trade payables	1,471	1,984	2,256
Revolver (drawn)	1,500	3,500	3,500
Term loan	0	0	0
Total liabilities	2,971	5,484	5,756
Shareholders' equity	11,808	13,235	14,970

CASH FLOW

Cash flow, US$000, by year.
Line	FY23	FY24	FY25
EBITDA	3,108	3,500	3,780
Increase in working capital	(1,031)	(3,737)	(3,435)
Interest paid	(120)	(190)	(270)
Tax paid	(557)	(633)	(675)
Operating cash flow	1,400	(1,060)	(600)
Capital expenditure	(900)	(600)	(300)
Dividends	(400)	(200)	0
Term loan drawn / (repaid)	0	0	0
Revolver drawn / (repaid)	0	2,000	0
Net change in cash	100	140	(900)

RATIOS FROM THE STATEMENTS ABOVE

Ratios computed from the three statements, by year.
Ratio	FY23	FY24	FY25
Revenue growth	—	25.0%	20.0%
EBITDA margin	11.1%	10.0%	9.0%
Operating cash flow ÷ EBITDA	45.0%	-30.3%	-15.9%
Debtor days (on revenue)	48	66	82
Stock days (on cost of sales)	38	63	64
Creditor days (on cost of sales)	35	39	38
Cash conversion cycle, days	51	90	108
Total debt ÷ EBITDA	0.5×	1.0×	0.9×

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

As the file stood when the request arrived: FY25 management accounts, and management's budget for FY26. 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 founder — Founded the business fifteen years ago; the managing director
40% A family trust — The founder and an independent trustee are its trustees; its beneficiaries are the founder's family, the second generation among them

Managing director.: The founder. Runs production and purchasing, and has held the relationship with the bank since it began in 2020.
Commercial director.: Second generation; moved onto the commercial side three years ago. Runs the supermarket and food-service accounts and the pricing.
Accounts officer.: Runs payables, receipts, payroll and the follow-up of overdue invoices. The company's external accountant prepares the annual accounts and advises the founder.

Leased, not owned: a food-grade factory with chillers, blast freezers and a packing hall, let by an unrelated property investor on a lease with six years to run and one right of renewal. The rent sits in overheads. Chilled and frozen deliveries to the supermarkets' distribution centres and to food-service customers are contracted to a refrigerated carrier.

FACILITIES AND PRICING

Working capital revolver: Limit US$3.5m; fully drawn at the FY25 year-endFloating; 7.75% all-in on drawings through FY25; line fee 0.25% on the limitAnnual review, rolling. Opened at US$2.0m in 2020; raised to US$3.5m at the FY24 review
Operating account: No overdraft limit; US$0.84m in credit at the FY25 year-end

SECURITY

General security agreement: Over all present and after-acquired property of Pacific Premium Foods Ltd, first-ranking, registered when the relationship began in 2020.
Personal guarantee: From the founder, limited to US$3.5m plus interest and costs. First given in 2020; signed again at the new amount when the limit rose.
Insurance: Stock and plant insured at replacement cost, with the bank's interest noted; the certificate is checked at each annual review.
The landlord's consent: In writing: the bank may enter the factory to take and remove the plant and stock it holds security over.

COVENANTS, TESTED ON THE ANNUAL ACCOUNTS

Each covenant, its level, and the result in each of the three years.
Covenant	FY23	FY24	FY25
Total debt to EBITDA No more than 2.5×	0.5×	1.0×	0.9×
Interest cover (EBIT to interest) At least 3.0×	17.6×	12.9×	9.9×

Annual accounts within 150 days of the year-end, with a certificate of the two covenants. Every year since 2020 inside the deadline, and every annual review completed on time.
Nothing monthly or quarterly is required: no management accounts, aged debtors or stock reports reach the bank during the year. The FY25 figures in this file, and FY25's covenant results, are from the management accounts the request came with.
Every covenant met, every payment on its date and no excess on the account since 2020.

THE REVOLVER, MONTH-END BY MONTH-END · LIMIT US$3.50m

M1US$3.50m
M2US$3.38m
M3US$3.50m
M4US$3.50m
M5US$3.42m
M6US$3.50m
M7US$3.50m
M8US$3.46m
M9US$3.50m
M10US$3.50m
M11US$3.50m
M12US$3.50m

At the limit at nine of the twelve month-ends, and never more than US$0.12m below it. No excess over the limit and no dishonoured payment; the operating account stayed in credit through the year.

DEBTORS AT THE FY25 YEAR-END, BY ACCOUNT

The debtors ledger by age, with each band's share of the total.
The national supermarket group	US$2.65m	28%
The two supermarket accounts taken on in FY24	US$4.30m	46%
Food service	US$1.75m	19%
Specialty and independent grocers	US$0.74m	8%
Total, as in the balance sheet	US$9.44m

CUSTOMERS

A national supermarket groupA customer since the business's early years. The 20th of the month following invoice until the second half of FY25; 60 days since: 30%; 27%
Two supermarket accounts taken on in FY2490 days from invoice — each account's policy for its suppliers: 34%; 30%
Food service — about 40 accountsDistributors, contract caterers and institutions; 30 days: 26%; 24%
Specialty and independent grocers — about 120 accountsThe 20th of the month following invoice: 10%; 10%
Two new contracts, in negotiationTerms not yet agreed: 0%; 9%

OVERHEADS AND TRADE SPEND

Trade spendPromotions, listing fees and rebates with the supermarket accounts: FY23US$1.40m; FY24US$3.15m; FY25US$4.62m
Chilled and frozen freightContracted to a refrigerated carrier: FY23US$2.38m; FY24US$3.08m; FY25US$3.78m
Staff, premises and otherOutside production; the factory rent is here: FY23US$5.77m; FY24US$6.77m; FY25US$8.15m
As in the accounts: FY23US$9.55m; FY24US$13.00m; FY25US$16.55m

Ingredients, packaging and production wages sit in cost of sales, above these lines.

THE LINE, YEAR BY YEAR

FY23: RevenueUS$28.0m; LimitUS$2.00m; Drawn at year-endUS$1.50m
FY24: RevenueUS$35.0m; LimitUS$3.50m; Drawn at year-endUS$3.50m
FY25: RevenueUS$42.0m; LimitUS$3.50m; Drawn at year-endUS$3.50m

The line opened at US$2.0m in 2020, on revenue of US$24m, and was raised to US$3.5m at the FY24 review, as the two supermarket accounts came on.

MANAGEMENT'S BUDGET FOR THE YEAR AHEAD

Revenue: ACTUALUS$42.0m; BUDGETUS$48.0m — of which US$4.5m from two new contracts in negotiation
EBITDA margin: ACTUAL9.0%; BUDGET9.5%
EBITDA: ACTUALUS$3.78m; BUDGETUS$4.56m
Working capital added: ACTUALUS$3.44m; BUDGETUS$1.78m — the FY25 cycle on the extra sales
Operating cash flow: ACTUAL−US$0.60m; BUDGETUS$1.57m
Capital spending: ACTUALUS$0.30m; BUDGETUS$1.00m
Dividends: ACTUALNil; BUDGETNil
Revolver at year-end: ACTUALUS$3.50m; BUDGETUS$2.93m, peaking near US$4.9m in the first half

LAST YEAR'S BUDGET, AGAINST WHAT ARRIVED

Last year's budget against the actual result, line by line.
Line	BUDGET	ACTUAL
Revenue	US$40.0m	US$42.0m
EBITDA	US$4.00m	US$3.78m
Debtor days	65	82
Stock at the year-end	US$3.20m	US$3.80m

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.

An aged debtors report. The ledger here is by account at the year-end; the latest ageing the company has run is more than a quarter old.
Stock by product line, and how fast each line is selling.
The trading terms agreed with the two supermarket accounts taken on in FY24 — payment days, promotional commitments, and what either side may deduct.
A monthly cash forecast through the procurement the increase is meant to fund.
The founder's statement of personal assets and liabilities, behind the guarantee.
A visit to the factory: the stock in the chillers and freezers, and the lines running.

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 the increase as requested[B]Approve, but stagger the drawdown over 60 days[C]Decline as framed — propose a different conversation[D]Walk away from the relationship

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

The first move, before reading any of the numbers, is to read the request itself. The MD is asking for a US$1.5m increase to a US$3.5m working capital line. Working capital lines are sized for the swing between when a borrower pays its suppliers and when its customers pay it back — the cash conversion cycle, in days, applied to the revenue base. So the question to ask before opening the financials is: how much more working capital should US$14m of growth need? The business's own file answers that before any sector average could. On the terms it ran two years ago — customers paying in 48 days, stock held about 38, suppliers paid in about 35 — the growth would have tied up roughly US$1.9m more. That is the ordinary cost of getting bigger, and a request for US$1.5m would look like it.

So the first thing the numbers have to show is whether that is what this is. Open the file. Revenue grew 50% in two years — the MD's "best run yet" framing is correct on the top line. EBITDA grew too, but margin compressed 210 basis points — the volume came at price. DSO went from 48 days to 82 days — customers now pay nearly twice as slowly as they did two years ago. Inventory grew 138% on revenue growth of 50% — three times the rate of revenue. Operating cash flow flipped from positive US$1.4m to negative US$0.6m. Five numbers, all moving the same direction, all pointing at the same thing: the working capital cycle has approximately doubled — trade working capital is up about US$7.2m, not US$1.9m — and the existing facility is no longer appropriately sized because the business is no longer the same business it was two years ago. It's bigger on the income statement and structurally tighter on the cash side. The US$1.5m increase the MD is asking for is not for growth. It's to plug the gap that growth has opened.

A senior banker reads this and considers, briefly, whether the right move is to approve the increase with conditions — borrowing-base structure, monthly aged debtors, a tighter covenant package. The instinct is reasonable. The borrower has been clean for six years, the increase is small in absolute terms, and declining outright would be the kind of move that ends a relationship. But run the math one more time. US$1.5m of additional facility, against approximately US$5.3m of additional working capital absorption already on the balance sheet (the DSO drag plus the inventory build, in dollar terms, over and above what the growth itself carries). The increase covers less than a third of what the cycle has already absorbed. Approving the US$1.5m doesn't fix the structure; it pushes the next, larger conversation out by about six months — at which point the borrower will be back, probably asking for US$3m more, on a story that has deteriorated further.

The senior banker's read is C. Not because the relationship doesn't matter — it does — but because the kindest thing the bank can do for a six-year client whose cash cycle has doubled is to surface the structural problem now, while EBITDA is still positive, the covenants are still clean, and the borrower's own narrative still treats this as a growth story rather than a stress story. Two specific structures get this surfaced: either restructure the existing US$3.5m draw into a 3-year amortising term loan and provide a smaller, properly-sized working capital line on top — or renew the existing facility on tightened terms (borrowing-base, monthly reporting, quarterly review) with a clear understanding that the next conversation is about restructure, not about further increases. Either move forces the question. Approving as framed delays the question, which makes the eventual answer worse for everyone — the bank, the borrower, the relationship.

There's one specific thing this is not. It's not telling the MD his business is in trouble. It's not breaking the news that the bank has lost confidence. It's a senior banker doing the work the borrower hired the bank to do — reading the file with discipline, naming what the numbers say, and proposing the conversation the founder's own accountant probably should have started six months ago but didn't. A bank that funds the deterioration in silence is not a better banking partner than one that surfaces it. It's a worse one. The MD will not enjoy the conversation. Six years from now, looking back from the other side of whatever happens next, he will be glad the bank had it.

THE NUMBERS THE READING USED

RevenueP&L · FY23 → FY25: US$28.0m → US$42.0m; Up 50% in two years: the founder's 'best run yet' is right about the top line.
EBITDA marginRATIOS: 11.1% → 9.0%; Down 210 basis points while gross margin rose: the volume came at a price, paid as trade spend with the new accounts.
Debtor days and stockRATIOS · BALANCE SHEET: 48 → 82 days · US$1.6m → US$3.8m; Customers pay nearly twice as slowly, and stock grew 138% on revenue up 50%.
Operating cash flowCASH FLOW: US$1.4m → −US$1.1m → −US$0.6m; Positive before the new accounts, negative since. The growth is being paid for by the working capital line.
What the growth alone should have neededFY23 DAYS (48 / 38 / 35) ON FY25 REVENUE AND COSTS: US$1.9m; The ordinary cost of getting bigger, on the terms the business ran two years ago — against a rise of US$7.2m in trade working capital.
What the lengthening cycle absorbedRECEIVABLES AND STOCK BEYOND FY23 TERMS ON FY25 REVENUE: US$5.3m; Receivables at 82 days instead of 48, and stock beyond what 50% growth carries. The US$1.5m asked for covers less than a third of it.

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

Uncollected revenue is a loan the borrower has already made.

// 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 FOUNDER'S CHAIR

The Shape of the Money

The bank said no to US$1.5m and offered you a term loan instead. Friday. Which shape of money do you take?

Read from this chair →

// THE SUCCESSOR'S CHAIR

The Numbers You Inherit

Your father asked for US$1.5m. The bank named the cycle instead. You are the one who will inherit the numbers.

Read from this chair →

// HOW READERS ANSWER

The senior banker's read is [C].

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

The tempting answer is B. The senior banker chose C. The reading explains why.

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Aoraki Trade Exports

Paid in USD, costs in NZD, asking for a NZ$6m multi-currency facility. The MD won't say which currencies.

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Pacific Premium Foods

// YOUR JUDGMENT

What do you do with this request?

The Lab