Sponsor-Backed Industrial Manufacturer

Situation

Due to industry headwinds and low margin contracts, the Company missed its projections in the two years prior to our engagement. This led to frequent amendments with its secured lenders (“Lenders”) that significantly increased debt service costs while the Sponsor kept infusing new money to prop up “Mt. Debt”. While the Company implemented significant cost cuts, continued underperformance and higher debt service costs strained liquidity, increased leverage, and stretched critical vendors. This put the Company at risk of penalties from failing to service current programs and winning new contracts. Additionally, the Company fell out of debt covenant compliance.

Gordian was engaged at a pivotal time when the Company was getting close to a liquidity wall and it and the Sponsor were in negotiations with its Lenders about a potential restructuring. These conversations had moved sideways as the Lenders resisted providing the Company with both (a) a meaningful balance sheet deleveraging and (b) the “runway” to execute on a new business plan.

Engagement

The Company is a private equity Sponsor-backed industrial manufacturer. At its zenith, the Company generated revenues of over $200mm and EBITDA of over $25mm, and had well over $100mm in debt. (These numbers are illustrative to ensure anonymity for the client).

Outcome

When we were engaged, the Lenders were offering a “tip” to the Sponsor if it cooperated in turning over Company ownership to the Lenders. 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), we quickly changed up the game.

In fact, within a month we were able to implement an agreement that saw an overall financial restructuring comprising (a) Capital Contributions from the Lenders and Sponsor, (b) debt write-off that included a sizable portion converting to preferred equity (30% of total debt), and (c) significant covenant runway to enable the Company to hopefully flourish. Moreover, the Company reduced annual cash debt service by $10mm annually via both two years of PIK interest on a super-majority of debt and rate concessions on the balance. All without diluting Old Equity’s stake in the Company.