Flagship Rollup Holdings, LLC — Senior Secured Unitranche IC Approval Memo
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Period: 2026-Q2    Status: final

NARRATIVE
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Falcon Credit Fund I commits $185M of senior-secured unitranche financing to Cornerstone Capital Partners' acquisition of four industrial-services platforms (HVAC, plumbing, electrical, mechanical) consolidating into Flagship Rollup Holdings, LLC. Pro-forma leverage 6.47x at close, FCCR 1.42x, $32.3M of liquidity. Pricing S+625 / 0.50% floor / 5-year tenor with 1% annual amortization. The commitment is consistent with our risk box for industrial-services consolidation deals; covenant package provides early-warning signal in downside scenarios. Recommend approval subject to six conditions precedent. IC vote scheduled May 8, 2026.

EXECUTIVE SUMMARY
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Falcon Credit Fund I commits $185M of senior-secured unitranche financing to support Cornerstone Capital Partners' acquisition of four industrial-services platforms (HVAC, plumbing, electrical, mechanical) into Flagship Rollup Holdings, a multi-state operator. Pro-forma LTM revenue $134M, adjusted EBITDA $26.7M, leverage 6.47x at close stepping to 5.75x by year 5. IC vote May 8, 2026.

TRANSACTION OVERVIEW
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$292.8M total purchase price across four platforms. Sources: $185M unitranche (this commitment), $78.4M sponsor common equity, $12M sponsor preferred equity (PIK 9.5%), $13.4M management rollover, $4.2M cash on close. Uses: $283.4M consideration to selling shareholders (net of refinanced debt), $6.9M transaction expenses, $2.7M working capital.

SPONSOR — CORNERSTONE CAPITAL PARTNERS
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Cornerstone Capital Partners is a $4.2B AUM mid-market PE sponsor with a 14-year operating history. Track record across four prior funds: 1.9x average MOIC, 18.4% average IRR. Industrial-services rollup is one of three core sponsor verticals (alongside building products and specialty distribution). Five prior rollup transactions in industrial services with weighted-average leverage at close of 6.2x and weighted-average de-leveraging of 1.4 turns by year 3.

CREDIT THESIS
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Industrial-services rollups are a structurally favorable credit category — large fragmented end-market, recurring revenue characteristics (60-70% maintenance/recurring service), cycle-resilient (essential trades), operating-leverage on consolidation. Flagship's pro-forma EBITDA margin of 19.9% is in line with sector benchmarks; the 200bp synergy capture in years 1-2 is supported by management's prior consolidation experience and a documented integration plan.

FINANCIAL SUMMARY
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Pro-forma FY2026 revenue $134M (LTM Q1 actual), EBITDA $26.7M (19.9% margin). FY2027 model revenue $147M / EBITDA $32.4M (22.0% margin) on synergy capture and modest organic growth. FY2028 model revenue $161M / EBITDA $37.9M (23.5% margin). Senior leverage 6.47x at close, 5.45x year 1, 4.78x year 2, 4.21x year 3. FCCR 1.42x at close, 1.65x year 1, 1.92x year 2.

COVENANT PACKAGE
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Maintenance: (i) Total Net Leverage 6.75x stepping to 5.75x; (ii) FCCR 1.10x; (iii) Liquidity $12.5M; (iv) Capex 5.0% of revenue; (v) Restricted payments lock at 5.50x leverage / 1.40x FCCR; (vi) Springing interest coverage at 2.00x if revolver util >35%. 4 equity cures permitted across the term, max 2 per LTM. Standard high-yield prepayment penalty (1%/0.5%/0%).

DOWNSIDE CASE
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If synergy realization slips to 60% of plan ($2.5M LTM by year 2), pro-forma leverage steps from 6.47x to 6.95x in Q1 2027 — through the 6.75x covenant cap by 0.20 turns. Equity cure required (one cure consumes the contractual basket per LTM). FCCR holds at 1.18x in the downside, above the 1.10x floor with 8 bps cushion. Liquidity remains comfortably above the $12.5M minimum at $26M+ in all modeled cases.

COMPARABLE TRANSACTIONS (SOURCED FROM SPONSOR + 3 THIRD-PARTY DATA PROVIDERS)
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Six comparable industrial-services rollups closed by other sponsors in the past 24 months at weighted-average pro-forma leverage of 6.4x and weighted-average pricing of S+587. This deal at S+625 reflects modest yield premium for the consolidation execution risk of a 4-platform combination.

MANAGEMENT TEAM AND ROLLOVER
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Newly-appointed CEO Sarah McAllister (formerly COO at competitor consolidator); CFO Daniel Whitfield (joining from McKean Industrial Holdings); COO Robert Vance (continuing from largest acquired platform). Management rollover totals $13.4M (12% of total equity). 5-year management retention package with vesting tied to leverage de-stepping milestones.

PRINCIPAL RISKS
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(1) Integration execution: 4-platform combination is operationally complex; track record at sponsor + management is favorable but not without precedent risk. (2) Customer concentration: top customer 18% / top-5 42% (post-consolidation); concentrated in Texas and Southeast geographies (61% combined). (3) Labor cost trajectory: 22% of cost base is union labor; master agreement renews 2027. (4) Cyclical exposure: industrial services has historically held up well in recessions but is not immune.

CONDITIONS PRECEDENT (OPEN)
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(i) Insurance bind-down at top three platforms; (ii) finalized integration timeline with sponsor's operating partners; (iii) Tier-1 customer waterfall analysis; (iv) confirmation of management retention package; (v) clean tax opinion on the §338(h)(10) election; (vi) executed Customer A MSA assumption agreement (no consent issues identified to date).

DECISION AND RECOMMENDATION
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Recommend approval of the $185M senior-secured unitranche commitment subject to the conditions precedent listed in §11. The commitment is consistent with our risk box for industrial-services consolidation deals; pricing of S+625 captures appropriate execution-risk premium; covenant package provides early signal in downside scenarios. Vote scheduled May 8, 2026.

RECOMMENDATION
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Approve $185M commitment subject to six conditions precedent. IC vote May 8, 2026.
