As we rapidly approach the holiday period, most investors will be looking forward to a seasonal slowdown in activity: wrap up current processes, take a few early look meetings, and then try to squeeze in some downtime before picking it all back up in the new year.
Unfortunately for Platinum Equity, they’ve had a year of near-nonstop portfolio company liquidity crunches, restructurings, and bankruptcies that doesn’t look like it’s wrapping up any time soon.
Originally published in the November 19th edition of Transacted.
Aventiv Technologies
Platinum has for years fielded widespread criticism over its investment in prison phone company Aventiv. Activists and regulators accuse the business (and its competitors) of charging inmates’ families up to $25 for a 15-minute phone call, proceeds from which are typically paid back to the correctional facilities as commission, a key source of prison funding.
Now, Platinum is feeling the heat from another direction as deteriorating financial performance coincides with looming debt maturities.
The company’s $1.1 billion first-lien term loan is coming due in November 2024, and its $283 million second-lien term loan is due in 2025. On top of that is a fully drawn $225 million revolving credit facility, also due on the same November 2024 timeline.
The firm had launched a refinancing process earlier this year, which included a months-long marketing effort and lender negotiations. Tepid interest forced Platinum to commit $400 million of additional equity financing as part of the proposal (on top of the $440 million already contributed), though even that proved too little to push lenders over the line — the firm quietly pulled the refinancing in July.
By the end of October, S&P announced it had cut Aventiv’s credit rating to CCC-. On the company’s prospects, S&P cited a “negative outlook [that] reflects our expectation that Aventiv is vulnerable to a payment default or distressed exchange in the coming months.”
Now, per Bloomberg, a group of lenders to Aventiv have signed confidentiality agreements to begin talks over terms to refinance the upcoming debt maturities. The group has a cooperation agreement in place and has retained Gibson, Dunn & Crutcher and Evercore as advisors.
SVP Worldwide
While that's happening, Platinum is also dealing with issues at SVP Worldwide, a sewing machine manufacturer it acquired in 2021.
A relatively recent addition to the portfolio, the business has been hit hard by a slump in demand — SVP posted a remarkable 76% year-over-year decline in 2022 EBITDA. Coupled with rising rates, the company’s cash position has progressively worsened.
Earlier this year, Platinum stepped in with a $50 million capital injection in the form of 20 percent PIK senior-secured first lien notes. That didn’t stop Moody’s from cutting the company’s credit rating to Caa2 in response to leverage that had hit more than 13.0x.
Shortly after, Bloomberg reported that a group of term lenders had retained Paul Hastings as counsel.
It hasn’t gotten any better since. In July, S&P reaffirmed its CCC rating and noted that first-quarter EBITDA had again fallen 82 percent vs. the same period a year earlier. With leverage that had breached 50.0x, S&P pegged the probability of recovery on the term loan at somewhere between 40 to 50 percent.
In October, bankruptcy and restructuring publication Petition first flagged that the company’s $370 million first lien term loan had dipped into distressed territory.
Absent a largely unexpected reversal in Singer’s fortunes, Platinum’s portfolio company may be nearing another liquidity crunch.
Petmate
The list keeps on going.
Platinum’s pet products business Petmate has similarly felt the pressure from a fall-off in consumer demand, coupled with debt service issues brought on by rising rates. In operation since 1959, the business is now on the brink two years after Platinum’s 2021 acquisition.
October kicked off with a WSJ report that Petmate was struggling to find the cash to meet upcoming payments on its $500 million debt load. The upshot was that Platinum was said to be nearing a deal to provide additional liquidity via a $100 million secured debt facility.
A week later, Bloomberg reported that Petmate had first considered withholding its next debt service payment, then mistakenly made a payment it hadn’t meant to, briefly attempted to claw that payment back, and then ultimately settled on a new 18.5 percent Platinum loan to the business, secured by the same assets promised to its original creditors.
The First Half Was No Better
A full docket, but that was just a recap of Platinum’s headaches over the prior month. They’ve already been working to shore up other parts of the portfolio all year.
In January, the firm reached an agreement on an out-of-court restructuring for materials business Yak Access, whose $1 billion debt burden had become too much to handle in the face of a slowdown in pipeline construction. As part of the deal, Platinum contributed additional equity, and lenders swapped their holdings into new facilities.
In May, the investor lost control of portfolio company Elevate Textiles. Another out-of-court restructuring agreement involved a debt-for-equity swap that left Platinum with just a 2 percent stake in the business. Creditors took the rest.
And in June, Platinum’s aerospace supply business Incora filed for bankruptcy after succumbing to its $3.1 billion debt load…
Still Mopping Up the Incora Mess
June’s Incora bankruptcy followed Platinum’s well-publicized 2022 ‘priming,’ a maneuver in which new lenders provide rescue financing while pushing existing creditors further down the capital stack (lowering their chances of repayment) — an example of “creditor-on-creditor violence,” to borrow a phrase from industry analysts.
Incora’s case was particularly aggressive:
The company’s outstanding bonds had a provision allowing a two-thirds majority of holders to vote to amend the bonds’ terms.
Platinum opted to partner with a PIMCO and Silver Point-led creditor group to improve its positioning. The group owned a chunk of the bonds, though remained below the two-thirds threshold. Platinum’s workaround involved the issuance of additional Incora debt to its allied creditor group, thereby hitting the two-thirds majority.
With full control, the group voted to issue a new class of super-priority debt, simultaneously revoking all collateral tied to the existing bonds and reallocating it to the more senior debt they’d just created. In the final step, they exchanged their old bond holdings into the new super-priority debt, placing themselves ahead of all other bondholders in the line for repayment.
To thank Platinum for facilitating the whole operation, they brought the sponsor along with them. The firm exchanged a slug of unsecured debt it was holding, previously junior to all other bondholders, into the same newly created super-priority debt that PIMCO and Silver Point had, leapfrogging its other (now unsecured) creditors in the process.
The creative approach bought Incora more time but, nonetheless, failed to stave off its June Chapter 11 filing. For its efforts, Platinum is now mired in a legal fight over the priming that’s pitted its PIMCO and Silver Point side against the deceived bondholder group that includes JPMorgan Chase & Co. and BlackRock Inc.
Adding further drama to the mix, proceedings were interrupted in October following the resignation of Houston bankruptcy judge David R. Jones, who had been overseeing the case. An unrelated ethics probe revealed he’d been secretly dating and living with a top Houston bankruptcy attorney since at least 2017.
All that to say, Platinum will be hoping it can put 2023 behind itself as soon as possible — though it’s still got some work to do before that happens.