UPDATE 1: Tor, BlackRock Leading Bondholder Discussions on Pearl; Kirkland & Ellis Among Law Firms Circling; $175M 9.5% Due 2022 Notes Bid at 30

UPDATE 1: 6:48 a.m. ET 1/19/2021: Tor and BlackRock, the two largest holders of precision plastics maker Pearl Engineered Solutions’ $175 million 9.5% notes due Dec. 2022, are leading talks with potential legal and financial advisors following the company’s appointment of Houlihan Lokey and Latham & Watkins, said three sources with direct knowledge.

Financial and legal advisors have begun circling the due noteholders, among them law firm Kirkland & Ellis, two of the sources said.

Company advisor Houlihan Lokey has been engaging with the noteholders this week, a separate source briefed on the matter told Reorg.

Separately, the due 2022 notes saw a bid at 30 today, the fourth source and a separate buyside source said. The due 2022 notes were indicated at 25/30 yesterday (Jan. 18), as reported.

Tor declined to comment. BlackRock, Houlihan Lokey and Kirkland & Ellis did not respond to requests for comment.

9M’20 Financials

According to Pearl Holding III Limited’s 9M’20 and 3Q’20 financials seen by Reorg, the company’s 9M’20 revenue declined 19.6% year over year to $117.9 million from $146.6 million in 9M’19. The decline moderated somewhat in 3Q’20 as revenue dropped 12.7% year over year to $51.5 million from $59.0 million in 3Q’19.

Pearl Holding III reported 9M’20 EBITDA of $6.7 million, down 44.6% year over year from $12.1 million in 9M’19 largely due to deepening net losses. 9M’20 net loss was $21.5 million, as opposed to a net loss of $15.6 million in 9M’19. LTM Sept. 30, 2020 reported EBITDA was $13.7 million and this amount includes advisory fees of $3 million paid/ payable to an affiliate of Platinum Equity and $6.4 million of restructuring and integration costs, amongst other non-recurring adjustments that the company made in order to arrive at LTM Sept. 30, 2020 reported adjusted EBITDA of $23.9 million.

In terms of cash flow, Pearl Holding III reported 9M’20 operating cash inflow of $6.6 million, excluding interest paid of $8.5 million. 9M’20 net capital expenditures reached $2.8 million. More significantly, 9M’20 net proceeds from borrowings was $13.3 million, excluding finance lease payments of $2.9 million during the same period.

Gross borrowings as of Sept. 30, 2020 amounted to $198 million or $209.4 million if lease liabilities are included as reflected on the balance sheet. Cash and bank balances as of Sept. 30, 2020 were $22.3 million. The increase in gross borrowings likely implies a further drawdown of the company’s revolving facilities since Q1’20.

-- Nidhi Pandurangi, Stephen Aldred

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Original Story 7:16 a.m. UTC on Jan. 18, 2021

Pearl Engineered Solutions Appoints Houlihan Lokey, Latham & Watkins as Advisors; Advisors Circle Holders of $175M 9.5% Due 2022 Notes

Precision plastics maker Pearl Engineered Solutions has appointed Houlihan Lokey as financial advisor, two sources told Reorg, while Latham & Watkins have been appointed as legal advisor, according to the first two sources and a third source.

Financial and legal advisors, meanwhile, have also begun circling the $175 million 9.5% notes due December 2022 noteholders, according to two of the sources.

Pearl did not immediately respond to a request for comment. Houlihan and Latham declined to comment.

Financial advisors had first begun to circle the company back in March 2020. But, at an investor call on April 3, 2020, company management had declined to comment on whether the company or its sponsors, private equity firm Platinum Equity were considering a debt restructuring and redirected queries on any potential restructuring to the sponsors, as reported.

Following the investor call, financial advisory firms that approached Platinum Equity for restructuring roles were rebuffed by the private equity investor, which was instead focused on improving the operational performance of Pearl, as reported.

Pearl’s notes due 2022 were indicated at 25/30 today, two buyside sources said. In February 2020, the notes had slid to the high 40s to 50s on the back of ratings downgrades by Moody’s and S&P, which flagged weaker sales and earnings contributions from core automotive and consumer electronics segments due to slowing economic growth and weak consumer confidence exacerbated by the US-China trade war, as reported. The notes then subsequently slid to the low-to-mid 30s in April 2020, according to cbonds.

Financials

According to a source with knowledge, private company Pearl reported a 20% year over year decline in sales during 9M’20 to $117.9 million. EBITDA during the nine months ended Sept. 30 were at $15.4 million, down 12.5% year over year. Cash and unutilised credit lines as of Sept. 30, 2020 stood at $28.9 million, of which cash was at $22.3 million, the source said.

The company had short term debt of $28 million as on Sept. 30, 2020, the source with knowledge said.

Pearl’s capital structure as of Sept. 30, 2019 is as below.
 
-- Stephen Aldred, Nidhi Pandurangi