Gibraltar's $12.5MM ABL Workout: Starco Brands Unravels

Gibraltar Business Capital has agreed to extend forbearance through December 31, 2025, on its $12.5 million asset-based revolver to Starco Brands (OTCQB: STCB), a consumer products rollup that has burned through multiple forbearance extensions since July.¹ The amendment, dated November 24, acknowledges continuing events of default related to EBITDA covenant breaches and reporting deficiencies—the same issues that triggered the original forbearance agreement in mid-2025.²

Key developments:

• Loan balance stands at $4.28 million against the $12.5M commitment, with interest accruing at 12.28% (1-month SOFR plus margin).³

• Going concern warning issued in Q3 2025 10-Q filing, citing recurring losses and covenant defaults—management acknowledges "substantial doubt" about continued operations.⁴

• Five-week runway until the forbearance period expires on December 31, 2025, at which point Gibraltar retains full enforcement rights unless the company cures defaults or secures additional relief.¹

• Forbearance escalation pattern: Initial agreement July 18 → September 16 deadline → conditional extensions through October/November tied to $300K monthly EBITDA thresholds → Amendment No. 1 extending through year-end.³

• Revenue cratered 24% YoY in H1 2025, with Q3 2025 net revenue of $11.6 million against a working capital deficit of $6.1 million and just $1.47 million cash.⁴

• Related-party lifeline: CEO Ross Sklar has outstanding subordinated loans to the company of $2.47 million, with an additional $1 million injected in August 2025.⁵

This is a textbook example of a lower-middle-market ABL workout in progress—one worth watching for both the structural lessons and the outcome.

What Alternative Business Lenders Need to Know

How Did a $12.5MM ABL Trip Into Forbearance in 14 Months?

The Gibraltar-Starco relationship provides a case study in how even well-structured ABL facilities can go sideways when the underlying business fundamentals deteriorate faster than anticipated.

When Gibraltar originated this facility in May 2024, Starco was coming off a FY2023 that showed $70 million in revenue and $7 million in Adjusted EBITDA.⁹ The company had recently completed a string of acquisitions—Soylent in February 2023, Skylar Body, Art of Sport—and was positioning itself as a "house of brands" with celebrity backing (Cardi B on Whipshots, the late Kobe Bryant on Art of Sport).¹⁴

The facility structure was textbook ABL:

The structure had appropriate controls—full dominion, borrowing base certificates, a single EBITDA covenant. But by July 2025, the company had tripped that covenant and accumulated reporting deficiencies.³

What Went Wrong with the Business?

The revenue trajectory tells the story. FY2024 came in around $47 million—down from $70 million projected—and 2025 is tracking even worse.⁹ The Q3 2025 filing shows nine-month revenue of $33.5 million, implying full-year revenue potentially in the low-$40s.⁴

The core problem is product mix deterioration:

Whipshots (vodka-infused whipped cream) was the highest-margin product, but got crushed by the spirits industry downturn. U.S. spirits supplier sales were down 1.1% in 2024, with premium categories hit hardest—super-premium spirits fell 5.6%.¹² Distributors cut inventory orders, and the "soft spirits market" directly impacted Whipshots revenue.⁴

Soylent (meal replacement), acquired for stock in 2023, faced its own challenges. The company reported that a "large retailer merging an entire set in ready-to-drink meal replacement category" hurt retail volumes, and supply chain issues constrained inventory availability.⁹

Art of Sport and Skylar provided some stability, but couldn't offset the Whipshots decline.

The result: consolidated gross profit collapsed from $12.4 million in FY2023 to $6.8 million in FY2024 for the Starco segment alone, despite revenue only declining 26%.⁹ When your highest-margin product gets hit hardest, the EBITDA impact is nonlinear.

How Is Gibraltar Managing This Workout?

Gibraltar's forbearance strategy demonstrates disciplined workout management. Let's map the timeline:

May 24, 2024: Facility closes. Gibraltar provides $12.5MM to refinance existing bank debt and related-party obligations.⁷

July 18, 2025: First Forbearance Agreement. Gibraltar acknowledges defaults but agrees to forbear through September 16, 2025. Critically, the agreement includes conditional extensions:

• Extend to October 16 if July 2025 EBITDA ≥ $300,000

• Extend to November 15 if August 2025 EBITDA ≥ $300,000³

November 14, 2025: Q3 10-Q filed. Management discloses: "The Company is in discussions with its lender to resolve these defaults, but the Forbearance Agreement has not been extended as of the date of this filing."³

Translation: Starco missed the EBITDA thresholds. The automatic extensions didn't trigger. Gibraltar and Starco had to negotiate a new deal.

November 24, 2025: Amendment No. 1 executed. Forbearance extended through December 31, 2025. All rights reserved.¹

This is how experienced ABL lenders handle workouts. Gibraltar hasn't waived anything—they've preserved all remedies while giving the borrower short-leash runway to find a solution. The EBITDA-linked extension triggers in the original forbearance showed sophistication: Gibraltar wanted objective milestones, not just promises.

What Are Gibraltar's Recovery Options?

With $4.28 million drawn against a formula-driven borrowing base secured by all assets,³ Gibraltar's recovery position isn't catastrophic—but it's not comfortable either.

Collateral composition matters here:

• Receivables and credit card receipts: At 90% advance, these provide the most liquid recovery path. Consumer products companies typically have 30-60 day collection cycles.
  

• Inventory: Capped at $7.0MM and the lesser of 65% LCMV or 85% OLV. The question is what Whipshots inventory liquidates for. Vodka-infused whipped cream isn't exactly staple goods—we'd expect significant haircuts on forced liquidation.
  

• IP and brand assets: Not included in the borrowing base, but part of the security package. Whipshots, Soylent, Art of Sport, and Skylar have brand recognition, but IP value in a distressed sale is heavily context-dependent.
  

Balance sheet reality check:

As of September 30, 2025:

• Cash: $1.47 million

• Inventory: ~$8.2 million (year-end 2024)

• Working capital deficit: $(6.1 million)

• Total debt: ~$7.9 million (Gibraltar + related party)

• Accumulated deficit: $(81.4 million)⁴⁵

Gibraltar is almost certainly in first position on all meaningful assets. The related-party debt from CEO Ross Sklar ($2.47 million) is subordinated.⁵ In a liquidation scenario, Gibraltar recovers first.

The more interesting question is whether there's a going-concern outcome. Starco announced a non-binding LOI to acquire The Starco Group (its contract manufacturer) in July 2025, which would create vertical integration.⁴ If that transaction closes, it could change the economics—but it also requires financing that seems unlikely given current circumstances.

What Does This Mean for Your Portfolio?

If you're lending to consumer brands companies:

The Starco situation illustrates how quickly consumer discretionary businesses can deteriorate. Spirits volumes were down globally in 2024—1% overall, with super-premium products hit hardest.¹²¹³ The "premiumization" trend that drove growth from 2015-2022 has reversed. Meal replacement is growing overall, but individual players face intense competition and retail consolidation risk.

If you're underwriting ABL deals:

Gibraltar's structure was sound—90% advance rates on liquid assets, inventory capped below the line, EBITDA covenant, full dominion. The covenant tripped anyway because EBITDA went negative. When you're lending to businesses with execution risk and consumer trend exposure, even well-structured ABL can find itself in workout.

If you're managing workouts:

Gibraltar's forbearance strategy is worth emulating:

• Short initial periods (2 months)

• Objective extension triggers tied to performance milestones

• Full reservation of rights

• No waivers—only forbearance

• Incremental extensions as company demonstrates progress (or doesn't)

The December 31 deadline gives Gibraltar leverage. If Starco can't find a refinancing, strategic exit, or equity injection by year-end, Gibraltar can accelerate.

What Happens Next?

The five-week window through December 31 is critical. The possible outcomes:

Scenario A: Refinancing or Recap A new lender takes out Gibraltar, or existing stakeholders (including CEO Ross Sklar) inject enough capital to cure defaults and restructure. Given the going-concern warning and $15 million market cap, finding replacement financing seems difficult.

Scenario B: Strategic Sale The brands have some value—Whipshots has brand recognition, Soylent has distribution. A strategic buyer (larger CPG company, private equity) could acquire the assets. This would likely be a 363 sale if it happens post-default.

Scenario C: Extended Forbearance Gibraltar agrees to another extension, perhaps with additional milestones, while Starco pursues the Starco Group merger or other alternatives. Kicking the can further down the road.

Scenario D: Enforcement Gibraltar exercises its remedies, seizes collateral, and liquidates. Given the full-dominion structure, Gibraltar already controls cash flow. Acceleration and liquidation would be straightforward.

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