Gibson Brands and its advisors continue to solicit financing for a recapitalization as a group of the company’s secured bondholders anticipate a bankruptcy scenario in the event the recapitalization is not completed by July. Despite the delay in the sale of a Nashville property originally included in the cash budget for January, the company
made its $16.6 million coupon payment due Thursday on its $375 million of 8.875% first lien notes. The company also
announced Thursday the departure of CFO Bill Lawrence, effective Jan. 25.
In addition to facing debt maturities this summer, the company’s liquidity has been affected by near-term events such as tightened terms from certain suppliers leading to cuts in shipments to the company, sources say. CEO Henry Juszkiewicz told Reorg, “This was a short-term issue, which is being reconciled as we speak.” The CEO added that there had been a delay in the sale of the Nashville property that was originally included in January’s cash budget based on a signed contract. Two lawsuits are pending against Gibson in the Davidson County Court of Chancery in Nashville regarding the sale of a property, and Juszkiewicz said that while the sale of a building in Nashville has been held up, the company expects that sale to take place this month. “In addition, we have made some adjustments that will put us in a much better position than we have been for some months,” the CEO added.
In terms of recapitalization efforts, according to sources, Gibson’s financial and legal advisors have been contacting hedge funds, private equity funds and strategics in recent months attempting to secure financing in amounts up to approximately $550 million between secured first lien financing and secured second lien financing. Such financing would be used to recapitalize the company’s existing capital structure. As contemplated, the recapitalization would give a substantial amount of equity to providers of second lien financing, but Juszkiewicz would maintain majority ownership in the company, the sources add. The existing $375 million notes balance will become due on Aug. 1, and if those notes have not been refinanced in full by July 1, the company’s term loans (which collectively carried a balance of approximately $120 million as of Oct. 27 but, pro forma two $5 million December prepayments on the term loans, carried a balance of approximately $110 million) and ABL facility (which carried a balance of $22 million on Sept. 30) will become due on July 23.
Sources indicate that the company
has not informed its creditors of any binding financing commitments for the intended recapitalization since it began to solicit financing in or around early December,
but the company and its investment banker Jefferies are continuing to pursue such financing.
Meanwhile, a majority of the company’s secured noteholders, advised by PJT Partners and Paul Weiss, anticipate that the company will be unable to recapitalize its debt by July and will face a bankruptcy filing within the year; the notes anticipate taking a majority of reorganized equity in a bankruptcy scenario, according to sources. The company has not engaged the noteholder group in substantive discussions regarding the recapitalization efforts or a potential bankruptcy filing, although the group
sent a letter to the company in late 2017, asserting that Gibson had both failed to disclose material agreements and had provided the holders with material misrepresentations, including regarding the domestic and international term loans provided by GSO.
Sources also indicate that the group has retained Japanese legal counsel to look into whether the notes’ security interests in certain subsidiaries, including TEAC and Onkyo, have been perfected. After inquiring with the notes indenture trustee regarding whether those interests were perfected, the notes were informed the company determined that it used all commercially reasonable efforts to perfect the shares but was unable to do so, according to sources. The secured notes last traded at 82.25 on Feb. 1, according to TRACE.
As of the
second quarter ended Sept. 30 (unless noted otherwise), the company’s capital structure consisted of:
- LIBOR+400 $55 million ABL Facility due 2022: $22 million drawn; collateral package includes a first lien on accounts receivable and inventory; interest rate terms subject to change in July 2018, depending on whether the maturity on the notes has been extended.
- L+12.25% GSO Domestic Term Loan: $76.65 million as of Oct. 27; collateral package includes (a) a first lien last out on the ABL’s AR and inventory collateral and (b) a second lien on the notes’ first lien collateral.
- L+12.25% GSO International Term Loan: $43.35 million as of Oct. 27; collateral package includes (a) a first lien on the inventory and accounts receivable of the international business, Gibson Innovations.
- 8.875% First Lien Notes due Aug. 1, 2018: $375 million; collateral package includes (a) a first lien on Gibson Brand’s assets, including intellectual property, real estate and certain hard assets (such as manufacturing equipment and pledges on shares of subsidiaries including TEAC and Onkyo), but excluding Gibson Brands inventory and accounts receivable, and (b) a second lien on Gibson Brands inventory and A/R.
As of Dec. 6, the company said on its second-quarter earnings call, $11 million was available under the ABL and cash at the restricted subsidiaries totaled $29 million.
The company made two payments on the term loans from GSO Capital Partners in December but has not disclosed whether the payments were made on the international term loan or the domestic term loan. If the lender, GSO, directed the company to make the December prepayments on the international loan, as it did for the September and October prepayments, the balance of the international term loan would have been reduced to $33.35 million.
Gibson has amended its domestic and international term loans six times since the company entered into the term loan agreements with GSO
in February 2016. The
first amendment, among other things, reset the company’s consolidated minimum EBITDA covenant through March 2018 and required the company to provide certain regular disclosures to GSO along with four $5 million prepayments on the GSO term loans to be made in monthly installments beginning September 2017.
The other amendments included: an amendment providing for
the incurrence of an incremental $6.65 million under the domestic term loan, proceeds from which were used to prepay the international term loan facility by an equivalent amount; a waiver of the minimum consolidated EBITDA covenant for Oct. 31 and extension of the due date on the November $5 million prepayment to Dec. 15; a waiver to the company’s
obligation to comply with the EBITDA covenant for the month ended Nov. 30, 2017, and certain obligations related to real property dispositions; and a waiver allowing the company to postpone the filing of its monthly financials for the November period.
Gibson Brands is
advised by Jefferies, Alvarez & Marsal and Goodwin Procter.