Platinum Equity's distressed year
An onslaught of portfolio company restructurings that just won't stop
Happy Sunday. Here’s what we’ve got today…
A single headline deal and a look at what’s been going on in Platinum Equity’s portfolio
The week’s deal sheet, plus concern over 777 Partners’ funding source
1. Bain considers an exit for Varsity Brands.
• Bain Capital is said to be evaluating potential exit options for portfolio company Varsity Brands, with both an IPO or sale up for consideration. Valuation expectations are north of $6 billion.
• Varsity Brands’ two primary business lines are BSN SPORTS, selling customizable team gear, and Varsity Spirit, through which it sells cheerleader uniforms and school yearbooks.
• Bain bought Varsity in 2018 from Charlesbank and Partners Group for around $2.5 billion. In 2022, it sold off its Herff Jones graduation merchandise business to Atlas Holdings, leaving it with the current offerings that drive LTM EBITDA of more than $400 million, per Reuters.
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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.
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.
A Platinum presentation meant to outline its social justice work also highlights a pricing trend no creditor wants to see
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.
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.
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.
• Glencore (LSE: GLEN) has agreed to buy Canadian miner Teck Resources' steelmaking coal unit, paying $6.93 billion for a 77% stake. Nippon Steel and POSCO have also taken minority positions.
• QuidelOrtho Corp. (Nasdaq: QDEL) is considering a sale of its transfusion medicine unit, which could be valued at $1.5 billion to $2 billion.
• Antin Infrastructure Partners is preparing to sell Idex, an operator of French heating and cooling plants that could be worth more than €3 billion.
• TikTok-owned ByteDance is considering a sale of its gaming studio Shanghai Moonton Technology, bought in 2021 for around $4 billion, per Bloomberg.
• Tsuruha (Tokyo: 3391), a Japanese pharmacy chain dealing with activist pressure, is exploring a sale that could be worth more than $4 billion, per Bloomberg.
• Brookfield shelved plans to sell holiday resort group Center Parcs after failing to secure bids near its $5 billion target.
• Jacobs Solutions, an engineering consulting firm, is in advanced talks over a potential $4 billion merger of its government consulting arm with Amentum Services, owned by American Securities and Lindsay Goldberg.
• Partners Group agreed to acquire Rosen Group, an engineering firm focused on testing services for oil and gas assets.
• Dye & Durham Ltd. has hired Goldman Sachs and Canaccord Genuity to advise on a potential sale of non-core assets, including its financial services division.
• Abry Partners has agreed to acquire legal intelligence provider Chambers & Partners from Inflexion in a deal valued at over £400 million ($514 million).
• EMZ Partners agreed to buy Imes-icore, a provider of dental milling machines, from Ardian.
• General Atlantic has agreed to acquire a majority stake in Joe & The Juice, valuing the food and beverage chain at around $641 million.
• Greater Sum Ventures has acquired a majority stake in Utility Associates, Inc., a Georgia-based manufacturer of body cameras and other law enforcement products, from Hicks Holdings.
• Ajinomoto Company Inc. (TSE: 2802) has agreed to acquire Forge Biologics, a gene therapy-focused contract manufacturer, for $620 million.
• Advent International has agreed to acquire UK-based payments services provider myPOS for north of $500 million.
• Allfunds Group, a provider of wealth management solutions trading at around €3.8 billion, is considering a possible sale and has begun soliciting interest from private equity.
• Gemspring Capital has acquired Fenceworks, a provider of residential fencing products and services.
• Spectrum Equity acquired a 20 percent stake in Benchmark Mineral Intelligence, a provider of minerals pricing and data solutions, at a valuation of just under $500 million.
• Thoma Bravo agreed to acquire German software provider EQS Group in a €400 million ($435 million) deal, representing a 53% premium over its pre-announcement value.
• Sanofi is reportedly working with Rothschild & Co. on a separate listing of its consumer health division, which could be valued at over $20 billion.
• Cargo Therapeutics (Nasdaq: CRGX), a biotech focused on CAR T-cell cancer treatments, raised $281 million in its IPO after pricing at the low end of its range. Existing backers include Samsara BioCapital, Perceptive Advisors, Third Rock Ventures, Nextech, RTW Investments, Red Tree VC, Janus Henderson, Wellington, Ally Bridge Group, Emerson Collective and Cormorant Asset Management.
• Norwest Equity Partners completed a minority investment in Aesthetic Partners, a clinical aesthetics-focused practice management company.
• DSD Renewables, a developer of solar storage solutions, secured a $250 million strategic investment from Cox Enterprises.
• Divergent Technologies, a provider of digital industrial manufacturing systems, raised $230 million in Series D funding. Hexagon AB led the round, with participation from new and existing institutional and family office investors.
• Urbanic, a London-based fashion brand leveraging AI for design and supply chain efficiency, raised $150 million in Series C funding. The round was led by Mirabaud, with participation from D1 Capital Partners, JAM Fund, and previous investors Nexus Venture Partners and Sequoia Capital.
• VectorY Therapeutics, a biotech focused on treatments for neurodegenerative diseases, raised €129 million ($138 million) in Series A funding. The round was co-led by Forbion and EQT Life Sciences, with participation from Merck & Co’s venture arm, Insight Partners, BioGeneration Ventures, and the ALS Investment Fund, among others.
• Blockchain.com, a cryptocurrency exchange and wallet provider, raised $110 million in Series E funding at a valuation less than half of its previous $14 billion. The round was led by Kingsway Capital, with participation from Baillie Gifford, Lakestar, Lightspeed Venture Partners, and Coinbase Ventures, among others.
• Petvisor, a provider of management and engagement software for the veterinary and pet services industry, raised $100 million in new funding led by Apax Digital Funds.
• Forward Health, a provider of membership-based primary healthcare clinics, raised $100 million in Series E funding from Khosla Ventures, SoftBank, and Founders Fund.
• Fnality, a London-based blockchain payments firm, raised $95 million in a Series B round. Goldman Sachs and BNP Paribas led the round, with participation from DTCC, Euroclear, Nomura, WisdomTree, and existing bank-backers like Banco Santander, BNY Mellon, Barclays, CIBC, Commerzbank, ING, Lloyds Banking Group, Nasdaq Ventures, State Street, Sumitomo Mitsui Banking Corporation, and UBS.
• MBrace Therapeutics, a biotech developing novel antibody-drug conjugates (ADCs) for cancer treatment, raised $85 million in Series B funding. TPG led the round, with participation from Avidity Partners, Cowen Healthcare Investments, Venrock, and Alta Partners.
• Cytovale, a San Francisco-based commercial-stage medical diagnostics company, raised $84 million in Series C funding. Norwest Venture Partners led the round, with participation from Sands Capital and Global Health Investment Corporation (GHIC).
• Imprint, a provider of co-branded credit cards for brands, raised $75 million in Series B funding at a $240 million valuation. Ribbit Capital led the round, with participation from Thrive Capital, Kleiner Perkins, and Moore Specialty Credit, among others.
• Element Energy, a Menlo Park-based battery management technology company, raised $73 million in Series B equity funding co-led by Cohort Ventures and an unnamed major clean energy generation company. Mitsubishi Heavy Industries, Drive Catalyst, FM Capital, AFW Partners, LG Technology Ventures, Edison International, Prelude Ventures, and Radar Partners participated, along with a $38 million debt facility from Keyframe Capital Partners.
• Nouscom, a Basel-based clinical-stage biotech developing neoantigen-based cancer vaccines, raised €67.5 million ($72 million) in Series C funding. Andera Partners, Bpifrance, and M Ventures co-led, with participation from Revelation Partners, Indaco Venture Partners, Panakès Partners, XGen Ventures, and existing investors 5AM Ventures, EQT Life Sciences, and Versant Ventures.
• EyeBio, an ophthalmology-focused biotech, raised $65 million in Series A Extension funding. Bain Capital Life Sciences, Omega Funds, and Vertex Ventures HC joined as new investors, bringing the round’s total to $130 million.
• Monument Bank, a UK-based digital bank serving wealthy clients, raised £40 million ($50 million) in Series B funding led by Dubai Investments.
• Otovo, a Norway-based online marketplace for rent-to-buy solar panels, raised €40 million in a private placement. The round was led by existing shareholders Å Energy, Axel Johnson Group, and Nysnø.
• PAI Partners raised €7.1 billion for its seventh flagship buyout fund.
• TPG Rise raised $2.7 billion for its third fund.
• Barings is seeking A$1.4 billion for an Australia-focused private credit fund.
• Kinderhook Industries raised $1.3 billion from Carlyle’s AlpInvest for a continuation fund to acquire nine of its portfolio companies.
• Everstone Capital is targeting $1 billion for its next buyout fund.
• Brinley Partners is targeting north of $1 billion for a second private credit fund.
• L Squared Capital Partners secured $840 million for its fourth buyout fund.
• GenNx360 Capital Partners is targeting $600 million for its fourth middle market buyout fund.
• Investcorp is targeting $550 million for a yuan-denominated private equity fund.
• Valor Capital is targeting $500 million for a pair of venture-stage funds.
• Material Impact raised $352 million for its third venture fund.
• Avra is targeting $350 million for its debut growth equity fund.
• Lightspeed Faction raised $285 million for its debut blockchain-focused fund.
• Acton Capital raised €225 million for its sixth venture fund.
• Acadia Infrastructure Capital debuts under former KKR managing director Tim Short, writing $25 - $200 million equity checks focused on the new energy transition.
1. Funding behind 777 Partners examined.
• Semafor’s Liz Hoffman says sports-focused investor 777 Partners has been using customer cash from its insurance arm to finance recent private equity activity. — Mystery investor 777 Partners bought sports teams with insurance customers’ cash, Semafor
2. The business briefing for investors.
• Founded by a team of investment bankers, scholars, and journalists, The Daily Upside writes a free daily business update focused on delivering market intelligence, concise insights, and in-depth analysis to Wall Street investors and advisors. — Expert Business and Financial News, The Daily Upside
3. A pair of papers on the latest AI trends.
• Both Coatue and Menlo Ventures came out this week with new reports on the current status of generative AI from the perspective of enterprise adoption and its place in the wider tech ecosystem. — AI: The Coming Revolution, Coatue // The State of Generative AI in the Enterprise, Menlo Ventures
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