Pace Industries LLC

April 12, 2020

Arkansas-based Pace Industries LLC and ten affiliates (the “debtors”) — fully-integrated suppliers and manufacturers of aluminum, zinc, and magnesium die cast and finished products in service of several industries (auto, powersports, lawn & garden, lighting & electric, appliances & industrial motors etc.) — filed fully-accepted prepackaged chapter 11 bankruptcy cases in the District of Delaware over the holiday weekend. The plan features one impaired class which voted 100% to equitize pre-petition debt.

A quick digression before we delve into what happened here. COVID-19 provides the ultimate cover for any and all businesses that file for chapter 11 over the next several months. You’re going to see all kinds of companies “clean out the junk” over earnings reports. It will be important, therefore, to parse through company messaging to determine whether they’re just massaging matters or whether, on the other hand, there were fundamental problems confronting the business prior to COVID-19 rearing its ugly head and shutting down the US economy. Where a company discloses that problems existed prior to March, there is absolutely no reason NOT to believe them. So it’s important that the collective we — newsletters writers, journalists, the twitterverse — get things right when talking about the carnage created by COVID-19.

And this case is only partially a COVID-19 story. Given the rush to sensationalize headlines and tweets, this is something we now feel compelled to note with each new bankruptcy filing. While the debtors, like everyone else, have been affected by the virus, it was not the catalyst to the debtors’ filing. The debtors have been seeking new capital sources since the summer of 2018; they initially sought an equity investment but when that couldn’t get done, the debtors shifted towards a sale and marketing process. Any and all initial interest in the debtors’ assets dissipated, however, when the debtors suffered from a poor Q4 ‘19. Interestingly, the disappointing performance was attributable to lower demand in the lighting, BBQ grill and appliance markets. To make matters worse, General Motors Inc’s ($GM) employees went on strike further compressing decreasing automobile production volumes. Moreover, the company self-inflicted some wounds: production inefficiencies relating to new products also hurt performance. Bankruptcy lawyers and advisors were hired in January — long before COVID stormed through and complicated matters further.

The debtors solicited their plan prior to their filing making this a true prepackaged plan. In other words, old school. None of this new solicitation technology; no straddle stuff. The only impaired class, the pre-petition noteholders, voted to accept the plan pursuant to which they would swap $232.1mm in notes for (i) equity in a reorganized LLC (subject to dilution from a management incentive plan AND warrants issued to the debtors’ post-petition DIP term loan lenders) and (ii) take-back term loan paper. This means the new owners will be TCW and Cerberus.

The cases feature a roll-up DIP ABL (which will ultimately be refi’d out through an exit facility) and a post-petition DIP term loan that will be refi’d out via a new term loan exit facility. The aforementioned warrants could amount to 51% of the new post-reorg equity.

This should be a quick case. The DIP terminates in 90 days from the petition date. Given that acceptance was 100% and that general unsecured creditors will be paid in full, this case should, absent other crazy externalities, be in and out of bankruptcy relatively quickly.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $92.1mm ABL, $232.1mm pre-petition notes

• Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Rachel Strickland, Debra Sinclair, Melany Cruz Burgos) & Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Joseph Mulvihill)

  • Financial Advisor/CRO: FTI Consulting Inc. (Patrick Flynn, Johnathan Miller)

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Parties in Interest:

  • DIP Revolver Agent ($125mm): Bank of Montreal

    • Legal: McGuireWoods LLP (Wade Kennedy, Alexandra Shipley, Brian Swett) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • DIP Term Agent ($50mm): TCW Asset Management Company LLC

    • Legal: Schule Roth & Zabel LLP (Adam Harris, Kelly Knight) & Landis Rath & Cobb LLP (Adam Landis)