Undisclosed Aerospace & Defense Company

Situation

After several years of struggle due to Covid supply-chain disruptions, a delay due to government contracting in a remote environment, rising interest rates and chronic production delays, the Company had reached the point at which it could no longer make its upcoming interest payment. Prior to this looming default, the Company had negotiated ‘band-aid’ amendments to its Revolver and Second Lien Facilities. The Sponsor had also made multiple capital injections, helped overhaul Company management and initiated a sweeping operational restructuring aimed at stopping the Company’s operational and financial bleeding.

Still, the elephant in the room was the First Lien credit agreement (and the Company’s overall leverage profile).  The Company needed covenant and debt service relief from its First Lien and Second Lien Lenders in order to provide runway for its operational transformation to unfold as well as for macro conditions to improve.

Gordian was engaged at a pivotal time when the Company was considering bankruptcy. Gordian formally engaged the First Lien Lending Syndicate in restructuring discussions and helped guide those discussions, which culminated in an out of court, consensual solution in under 3 months.

Engagement

The Company is a private equity, Sponsor-backed Aerospace & Defense manufacturer focused on the design and production of mission critical equipment. When acquired through a leveraged buyout, the Company had upwards of $50 million in EBITDA. By the time Gordian was retained, the Company’s EBITDA and liquidity had dwindled substantially to the extent that it could no longer service its several hundred million dollar debt load.

Outcome

Using our traditional “carrot and stick” approach (i.e. leveraging our unique lack of conflicts with creditors to create credible scenarios that the Lenders would dislike and fear), Gordian quickly established the tenor of the negotiations.

In fact, within three months we were able to implement an agreement that saw an overall financial restructuring comprising (a) Capital Contributions from the Lenders and Sponsor (with the Sponsor contribution pari-passu with the restructured First Lien Debt), (b) a 30% debt write-off, and (c) significant covenant and maturity runway to allow the Company time to implement its operational turnaround. Moreover, the Company reduced future aggregate cash debt service by more than 50% via both PIK interest and the elimination of mandatory amortization. All with minimal dilution to Old Equity’s stake in the Company while allowing for cure rights.