Gordian Group advised a private equity firm in connection with the successful restructuring of its investment in an Undisclosed Basic Industries Company.
Undisclosed Basic Industries Company
CLIENT: Private Equity Firm for its portfolio company in connection with the successful restructuring of its investment in an Undisclosed Basic Industries Company. The Private Equity firm paid approximately $150 million for the Company.
Due to market headwinds, the Company could no longer support its debt load of approximately $100 million as revenues fell from more than $100 million at time of purchase to under $50 million within a year or so, and EBITDA fell from $20 million to less than $2M in the same period.
The Company was in default under its senior secured and subordinated debt facilities when Gordian was engaged by the Company’s private equity sponsor (“Old Equity”) to help negotiate with lenders on behalf of the PE firm.
Gordian multi-tracked several creative and aggressive strategies, all aimed to effect a write-down of debt to a more sustainable level while still providing a meaningful recovery to Old Equity – a challenge complicated by the fact that Old Equity was not in a position to make a new capital contribution.
Notwithstanding approximately $100 million of debt and almost zero EBITDA, Gordian was able create a meaningful seat at the table for the Sponsor. As a result, Gordian was instrumental in negotiating a transaction on behalf of Old Equity that included:
- A 50% reduction in total debt from $100 million to $50 million:
- Senior secured lenders (“Banks”) converted a senior secured claim of over $70 million to (a) $50 million in new secured debt and (b) 80%* of the Company’s equity
- Subordinated lenders (“Mezzanine”) converted a $25 million claim to 15%* of the Company’s equity
- Without providing new money, Old Equity received 5%* outright of the reorganized Company’s equity, and:
- Equity allocations to Old Equity will ratchet up at various valuation levels once the Banks receive a full recovery on their restructured $50 million principal amount
- Based on very achievable valuation levels, Old Equity could claw back to 34%* of the Company’s equity
- At certain very achievable valuation levels, Old Equity will recover about the same amount as the Mezzanine
As a result of certain rights provided to the sponsor as part of the restructuring, it was able to reacquire a controlling equity stake within 2 years of closing at very advantageous pricing, positioning itself to reap the benefits of the Company’s strong performance. The Company was eventually sold, netting a very meaningful return for Old Equity.
* Before giving effect to a management incentive plan.