One Rock Capital Partners’ Robertshaw Is Latest Example of ‘Creditor-on-Creditor Violence’

Appliance manufacturer Robertshaw, a portfolio company of One Rock Capital Partners, filed for Chapter 11 bankruptcy last week. Here’s the background on one of the most remarkable cases of creditor-on-creditor violence in recent memory…

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From the Beginning

One Rock acquired Robertshaw in 2018 for around $900 million, financed via a $440 million first-lien term loan and $140 million second-lien term loan, both broadly syndicated.

In a familiar story, pandemic-related supply chain struggles hobbled the business, operational turnarounds failed to improve the situation, and a liquidity crunch pushed Robertshaw over the edge.

In late 2022, the company was rapidly running out of cash and launched a debt financing process to secure some stop-gap funding. By May of last year, after reaching out to nearly 40 parties, the company settled on a proposal from a group of its existing lenders (the “Initial Ad Hoc Group”).

The group included Bain Capital, Canyon Partners, Eaton Vance, and Invesco, who collectively provided $95 million of new money and exchanged their original term loans into an equivalent amount of new Super Priority Credit Agreement (SPCA) loans, jumping to the top of the cap structure (and repayment queue) above the existing term loans from the original transaction.

Robertshaw’s original lenders that were excluded from the Initial Ad Hoc Group watched helplessly as their positions slid from 1st and 2nd in line for repayment to 6th and 7th.

In November, this group of “non-participating lenders” filed a complaint in New York State Court alleging that the maneuver violated the original credit agreement.

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Despite the May cash infusion, within months, Robertshaw again found itself on shaky ground. The company’s ABL lenders, Deutsche Bank and PNC, began imposing restrictions on the company’s $50 million line, forcing Robertshaw to find a way to refinance the facility—something Robertshaw would have had to do anyway ahead of the ABL’s upcoming December maturity, but made more urgent by the immediate need for liquidity.

Robertshaw eventually agreed terms on a refinancing proposal from Brigade Capital Management. One day before close, however, existing term loan lender Invesco notified the company that it viewed Brigade’s refinancing arrangement as a violation of the terms of the SPCA.

Deciding an ABL deal wasn’t worth the fight, Brigade withdrew its proposal, sending Robertshaw straight back into the dire situation the company thought it had temporarily solved.

At the same time this was happening, Invesco made a series of secondary market purchases to bump its holdings of the new SPCA loans above a 50 percent “Required Lender” threshold, which allowed a majority holder (or holders) of the term loan to make amendments to the credit agreement.

As Robertshaw tells the story, the move was part of an Invesco scheme to turn on its previous allies, attempting to “enhance its own returns at the expense of Robertshaw and other lenders, including fellow members of the initial Ad Hoc Group.”

Robertshaw alleges that Invesco scrapped the proposed Brigade ABL refinancing as a way to force Robertshaw into default when the existing ABL matured in December.

Invesco could then push the company into a rushed Chapter 11 filing, a scenario in which, Robertshaw says, Invesco had planned “to use its Required Lender status to credit bid enough for it to take control and majority stakeholder ownership.”

“Invesco would have been able to purchase substantially all of the Company for pennies on the dollar, leaving all other stakeholders with virtually no recovery.”


Turning the Tables

Robertshaw kicked off a search for alternative financing to avoid a December default, ultimately securing new funding from the remaining members of the Ad Hoc Group, including One Rock, Bain Capital, Canyon Partners, and Eaton Vance.

The group provided $228 million in incremental debt, with proceeds used to pay off the maturing ABL, voluntarily prepay a portion of the first-out SPCA, and hand $44 million of new money to Robertshaw for its operations.

Crucially, the additional financing meant that the new Ad Hoc Group met the 50 percent threshold for “Required Lender” status, securing the majority needed to displace Invesco and prevent the firm’s unilateral decision-making.

None of that sat well with Invesco, which went ahead and sued Robertshaw, One Rock, and the Ad Hoc Group in New York State Supreme Court for breach of contract, among other complaints.


Unavoidable Bankruptcy

The additional funding lasted Robertshaw little more than a month, with a bankruptcy filing delayed from early January to February 15th.

At first glance, it’s a lot of effort for a headline outcome that’s no different than what it would have been in December. Diving deeper, however, One Rock has positioned itself to salvage whatever it can from the ordeal—the firm now holds $32 million of first-out SPCA claims and $10 million of second-out SPCA claims.

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One Rock, along with the rest of the Ad Hoc Group (excluding Invesco), negotiated an in-court Restructuring Support Agreement with Robertshaw that targets a sale process and eventual liquidation.

The group has also put forward a debtor-possession-financing plan for $56 million of new money with up to 9.5 percent PIK interest, a 5 percent commitment fee, and a 5 percent exit fee.

Absent receipt of an improved offer, the group plans to credit bid their claims, including the $218 million of financing provided to date and the yet-to-be-approved DIP.

Robertshaw wrapped up the week with yet more legal proceedings, filing an adversary complaint against both Invesco and the uptiered May lenders to seek a declaration that the company’s actions were valid under the credit agreement in each case.

Sam Hillier

Sam Hillier is a reporter at Transacted covering private equity and investment banking. He previously spent time as an investment professional focused on direct buyouts, as well as an earlier strategic advisory stint.

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