Dealwatch: PE-backed bankruptcies
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[Posted on April 10, 2008 at 2:32 PM]
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Filed under: Bankruptcy | Dealwatch | Private Equity
The credit crunch has had an impact not only on pending leveraged buyouts, but now it's affecting the portfolio companies of private equity firms. For some companies, this means write-downs for its PE owners; for other companies, it means Chapter 11. The filings just keep coming.
The latest news came the week of April 7, on electric power plant operator North Carolina Power Holdings LLC, which was placed in involuntary Chapter 11 on March 17 by its private equity owner Vulcan Capital Management, with two of the firm's affiliates calling for the immediate appointment of a trustee. But the company's secured lender Del Mar Onshore Partners LP moved to block the request and dismiss the bankruptcy entirely, calling the request "premature." A hearing had been set for April 10. Judge A. Thomas Small was expected to enter an order April 9 to postpone the hearing until May 1, the New York firm's counsel told The Deal's John Blakeley.
Kicking off April, Denver-based restaurant chain operator Vicorp Restaurants Inc., which Wind Point Partners and other co-investors closed a $225.5 million leveraged buyout of in 2003, filed for Chapter 11. Vicorp owns and operates the Village Inn and Bakers Square restaurants. Fairmont Capital took the company private in a $174 million deal in 2001. The company plans to close 56 restaurants and is reviewing underperforming assets. It has secured an agreement with lenders for a $60 million debtor-in-possession loan, according to a statement April 3.
March 17 marked another PE-backed bankruptcy filing date, when Powermate Corp., an Aurora, Ill.-based portable electric generator maker, filed for Chapter 11 in hopes of selling its assets through a speedy Section 363 sale. The company is the latest in Sun Capital Partners Inc.'s portfolio to go belly-up. (See others below.)
Leiner Health Products Inc. filed for bankruptcy March 10, six years after its initial Chapter 11 filing, and said it would receive $74 million in DIP financing. The company's petition indicates Golden Gate Capital and North Castle Partners affiliates each own 46.82% of preferred shares. After emerging from bankruptcy protection, Leiner again fell on tough times last year. The Deal's David Carey explained that upon the 2002 filing:
North Castle led a $20 million bailout financing. The firm wound up with a profit on its $100 million investment when Leiner was recapitalized in April 2004.
In the recap, North Castle cashed out its existing stake and tapped capital from a second recently raised fund to reinvest. San Francisco-based Golden Gate came in as a co-sponsor.
Each firm invested $131.5 million of equity in 2004 and owns slightly less than 50% of Leiner.
Meanwhile, kicking off March, Willis Stein & Partners LLC-backed Ziff Davis Media Inc. filed for bankruptcy March 5, nearly seven months after hiring restructuring firm Alvarez & Marsal LLC to help restructure its debt.
Rounding out February, Warburg Pincus-backed Wellman Inc., a Fort Mill, S.C., resins maker, filed for Chapter 11 on Feb. 22 amid a heavy debt load. The filing came two days after Sun Capital Partners-owned Lillian Vernon Corp.'s. The direct-mail and online retailer filed for bankruptcy Feb. 20. Sun Capital bough Lillian Vernon from Direct Holdings Worldwide LLC, an entity formed by Ripplewood Holdings LLC and ZelnickMedia, in June 2006 for undisclosed terms. Direct Holdings took the company private in 2003 in a $60 million deal after years of losses. (Sun Capital is also an investor in Sharper Image Corp., which filed Feb. 19.) That news came just days after Victor Plastics Inc., which is majority owned by Minneapolis private equity firm Spell Capital Partners LLC, found Feb. 15 a stalking-horse bidder in River Bend Industries, which also produces plastics for original equipment manufacturers. North Liberty, Iowa-based Victor filed for bankruptcy Jan. 15.
Before Lillian Vernon, the last PE-backed company to hit the skids was BWAS Holdings Inc., a KPS Special Situations Funds portfolio company and maker of thermoplastic assemblies (tubes used for flow ducts and fender liners), which filed for bankruptcy protection Feb. 12. The company hopes a $30 million DIP loan will help it reorganize. The news came a day after carburetor and fuel injection systems maker Holley Performance Products Inc. of Bowling Green, Ky., filed for protection. Too much leverage forced the company, which is largely owned by private equity firm Kohlberg & Co., into Chapter 11. (For more on private equity-backed, transportation-related companies that have found themselves in bankruptcy, see below.)
The Deal's John Morris took up the issue of PE-backed companies going under Feb. 4. PEHub's Dan Primack also did so Feb. 6.
HOUSING DOWNTURN'S TO BLAME
* Fortunoff Fine Jewelry and Silverware LLC went the way of bankruptcy Feb. 4, filing for protection and agreeing to a $100 million bailout by NRDC Equity Partners LLC. In November 2004, Trimaran Capital Partners LLC and K Group acquired a majority stake in Fortunoff for undisclosed terms.
* The same day, Wickes Holdings LLC's Wickes Furniture, (another Sun Capital holding, which it picked up in 2002) filed for protection and has a $30 million DIP loan from Wells Fargo Retail Finance.
* Morris on Feb. 4 also pointed to other companies suffering indirectly from the housing downturn, like Propex Inc., which filed for bankruptcy protection in January. Sterling Group LP, Genstar Capital LLC, Laminar Direct Capital LP and BNP Paribas SA bought the carpet backing and fabrics company in 2004 for $349.3 million.
* In early November, Hoboken Wood Flooring LLC fell victim to a slowdown in home construction, Morris noted, and the Wayne, N.J., company taken-private by Chicago's Code Hennessy & Simmons LLC in 2005 when it had more than $500 million in revenue, filed for liquidation, claiming it didn't have the finances to reorganize. Its case was dismissed Nov. 16.
TRANSPORTATION COS. SPUTTER
* Performance Transportation Services Inc. won final approval of its $15 million debtor-in-possession financing Jan. 18. The Allen Park, Mich.-based auto transporter filed for Chapter 11 alongside 13 affiliates on Nov. 19, only 10 months after emerging from an earlier Chapter 11 case. Los Angeles private equity firm Yucaipa Cos. LLC got a majority stake in the company when it emerged from its first bankruptcy in January 2007.
* Omaha-based Heartland Automotive Holdings Inc. sought protection Jan. 7, citing increasing fuel prices and a dispute with Jiffy Lube International Inc. Quad-C Partners VI LP is its majority shareholder, having put $39 million in equity into the company in 2002. Heartland operates 438 Jiffy Lube stores across 20 states. It estimated $334 million in assets and $396 million in debts as of Nov. 29.
* Patriarch Partners-backed emergency vehicle company American LaFrance LLC filed Jan. 29. Patriarch Partners Agency Services LLC, which is its postpetition lender, has now made a $150 million credit bid for the company, making it a stalking-horse bidder.
* Clayton, Dubilier & Rice-backed moving van group Sirva filed for protection to refinance its debt. As The Deal's Ben Fidler and Lou Whiteman noted of Sirva's past:
Sirva has long been a blemish on the portfolio of New York buyout firm Clayton, Dubilier & Rice Inc. The buyout firm completed its $350 million acquisition of Allied Van Lines and merged it with North American Van Lines to create Allied Worldwide in November 1999. NAVL was renamed Sirva in February 2002.
CD&R took Sirva public in November 2003, only to see it struggle to get its books in order as a public entity. Sirva said in March 2005 that its 2004 results would be delayed and that it would restate its profits from 2001 to 2003. Sirva finally produced results for 2004 in September 2005, but later revised those statements and warned annual financial statements from 2002 and 2003 couldn't be trusted.
Besides CD&R, which owns 31.88% of Sirva, ValueAct Capital Master Fund LP is also a major shareholder in the debtor with a 20.9% stake.
* Further, Eagan, Minn.-based buffet-style restaurant chain Buffets Inc. got interim approval on Jan. 23, for a $385 million postpetition loan with units of Credit Suisse Group, a day after filing for bankruptcy protection alongside 11 affiliates to restructure its debt after defaulting on the $321 million in 12.5% notes. New York private equity firm Caxton-Iseman Capital LLC owns a 77% stake in the company.
Others, which PEHub's Dan Primack pointed to, include:
* Silver State Helicopters, which filed for Chapter 7 five months after selling a 60% stake in itself for nearly $30 million to Eos Parnters, and, more immediately, after Citigroup Inc. stopped providing loans to the flight school's students.
* Outsourced sales and consumer management services provider PRC LLC, filed for bankruptcy protection Jan. 23 and was subsequently allowed to access a $30 million DIP from its senior lenders. Diamond Castle Holdings LLC took the company private in November 2006, buying it from IAC/InterActiveCorp for $286.5 million.
And another of note is Buffets Inc. The Eagan, Minn.-based steak chain, the largest in the U.S., which is sponsored by CI Capital Partners Inc., went belly up Jan. 22 along with 17 affiliates.
THE ROLE OF RATINGS
But which companies tumble into bankruptcy may have something to do with their private equity backers as much as the companies' doings themselves.
Morris noted in February:
In a report last month, Moody's Investors Service surveyed buyouts to see which sponsors milked their holdings for dividends early on in the investment's life. ... Moody's singled out TH Lee and Apollo for drawing dividends from one-third of their companies in the first year post-LBO. Both firms have a high proportion of distressed-level debt for their deals. By contrast, four firms that were much less prone to suck cash out of their portfolio companies-Cerberus Capital Management LP, Goldman Sachs Capital Partners, TPG and Warburg Pincus-all did better in the distressed rankings.
-- Carolyn Murphy
thedeal.com |
