Tue 09/12/2023 15:14 PM
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The most recent double-dip transaction in Wheel Pros features an enhanced first-in, last-out that enjoys a higher priority on term priority collateral than a traditional FILO, along with common components including nonguarantor restricted subsidiaries, an intercompany loan, and a security and guarantee package.

Debt finance and restructuring professionals continue to innovate and structure liability management deals within the limitations of debt documents, incentivizing participation while providing the issuer with new money and reducing leverage. Unlike a traditional FILO that usually has a second lien, last out or a third lien on term priority collateral, the new $235 million Wheel Pros FILO, to be incurred by existing loans’ borrower Wheel Pros Inc., will have a first lien on term priority collateral, pari with nonparticipating term loans, an intercompany loan and the new first lien loan, according to sources.

The facility, paying 8.5% to 8.75% in cash with a 98.75 OID, will also have a first lien on the ABL priority collateral, pari with the existing ABL but second-out in payment priority. In addition, the transaction features a second lien double-dip as part of a par exchange of unsecured notes for new second lien loans, which the market has not seen recently.

To effectuate the transactions, majority term lenders and unsecured noteholders amended the credit agreement and bond indenture to remove certain restrictions other than sacred rights and permit the incurrence of new debt and the formation of two new nonguarantor restricted subsidiaries, the sources said. Participating term lenders lent money in the form of new first lien and second lien loans to one of those entities to start open-market purchases of existing loans and unsecured notes.

The new first lien and second lien loans will be secured and guaranteed by the two new subsidiaries, Wheel Pros Inc., Wheel Pros Intermediate Inc. and each of Wheel Pros Inc.’s wholly owned subsidiaries, the sources said. One of the new nonguarantor subsidiaries will also lend the proceeds of the new first lien and second lien loans back to Wheel Pros Inc. through a first lien intercompany term loan, which will be secured and guaranteed by Wheel Pros Inc., Wheel Pros Intermediate Inc. and each of Wheel Pros Inc.’s wholly owned subsidiaries. The intercompany loan will be used to make open-market purchases.

Consent deadline for the Wheel Pros deal is Monday, Sept. 18.

The distributor of custom wheels and performance tires also released second-quarter earnings with cleansing materials, according to sources. Adjusted EBITDA for the quarter was $38 million, while pro forma sales fell 27% year over year. The company reported liquidity of about $25 million, consisting of $8.7 million in cash and around $16 million of availability under its ABL facility. It burned about $20 million in the quarter.

A Reorg primer on double-dip transactions, including analysis of the At Home and Sabre deals, can be found HERE. Reorg’s analysis of Trinseo’s double-dip refinancing is HERE.

Wheel Pros did not respond to a request for comment. A representative for Clearlake declined to comment.

--Harvard Zhang, Geoff Burrows
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