April 12, 2020 – Pace Industries, LLC and ten affiliated Debtors (“Pace” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10927. The Debtors, a leading North American full-service aluminum, zinc and magnesium die casting company, are represented by Robert S Brady of Young Conaway Stargatt & Taylor. Further board-authorized engagements include (i) Willkie Farr & Gallagher LLP as general bankruptcy counsel, (ii) FTI Consulting as financial advisors and (iii) Kurtzman Carson Consultants LLC as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn (bank and bond debt estimated at $324.2mn). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Service Aluminum Corporation ($1.6mn trade debt), (ii) SID Tools Co. Inc. ($1.6mn trade debt) and (iii) Strohwig Industries, Inc. ($1.5mn trade debt). All 20 of the Debtors' top 20 unsecured creditors have claims in excess of $400k.
In a press release announcing the filing, the Debtors advised that they had “reached an agreement with its senior secured lenders on the terms of a comprehensive financial restructuring plan, which will deleverage the Company's balance sheet. This agreement has support from 100% of the holders of its senior secured notes as well as its revolving credit facility lenders.
Upon implementation, this agreement will give the Company the financial foundation necessary to resume normal-course operations following the COVID-19 outbreak, realize the full benefit of its cost-savings initiatives and strategic investments recently executed, and continue to serve its customers as a leading fully-integrated provider of die cast aluminum, magnesium and zinc components.
As a result of its noteholder and lender support, the Company expects to complete the process in the second quarter of 2020 – emerging as a financially stronger company that is well-positioned to succeed in the post-COVID-19 environment."
Under the terms of the proposed prepackaged plan, the Company will convert its existing senior secured notes into 100% of the equity in the reorganized Company."
Plan/Restructuring Overview
The Prepackaged Plan provides that:
(a) the Prepetition ABL Lenders, who are anticipated to be paid in full shortly after the commencement of these Chapter 11 Cases with the proceeds of a debtor-in-possession ABL facility, will be refinanced and paid in full through the proceeds of a new ABL exit facility, and
(b) the Prepetition Noteholders will each receive their pro rata share of (i) 100% of the equity issued by a new limited liability company created to own all of the outstanding equity interests of reorganized Pace Industries, LLC as of the Effective Date, subject to dilution by new warrants to be issued to the Debtors’ postpetition lenders and equity that may be issued in connection with a management incentive plan following the Effective Date and (ii) a new junior term loan facility. The Prepackaged Plan also contemplates that the Debtors’ postpetition term loan financing facility will be refinanced and paid in full through the proceeds of a new term loan exit facility and the issuance of new warrants to purchase, in the aggregate, 51% of the equity interests of reorganized Pace Industries, LLC.
In addition to distributions to the Debtors’ pre- and postpetition secured lenders, the Plan provides for the reinstatement or payment in full of the Debtors’ General Unsecured Claims, as well as the following: Allowed (i) Administrative Expense Claims, (ii) Priority Tax Claims, (iii) Professional Fee Claims, (iv) Priority Non-Tax Claims, (v) Other Secured Claims, and (vi) General Unsecured Claims."
DIP Financing
The press release states: "The Company's senior secured noteholders, along with its existing revolving credit lenders, will provide commitments for up to $175 million in debtor-in-possession financing to help ensure that the Company can meet its commitments during the process." The DIP financing, which we cover separately is comprised of (i) a $125.0mn senior secured super-priority asset-based revolving credit facility and (ii) a $50.0mn senior secured, super-priority multi-draw term loan facility, of which $21.0mn shall be available upon entry of an interim DIP order and $29.0mn shall be available upon entry of a final DIP order.
Prepetition Capital Structure
As of the Petition date, the Debtors’ capital structure includes over $324.2mn in outstanding debt, consisting of (a) approximately $92.1mnn outstanding under their prepetition ABL facility and (b) approximately $232.1mn in aggregate principal amount of their senior secured notes due 2020. The senior notes mature on July 10, 2020 and bear a base interest rate of LIBOR plus 8.25%, plus additional PIK interest of 2.5%.
The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Priority Non-Tax Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 3 (“Senior Notes Claims”) is impaired and entitled to vote on the Plan. Estimated recovery is 60-70%. On the Effective Date, or as soon as reasonably practicable thereafter, except to the extent that a holder of an Allowed Senior Notes Claim agrees to a less favorable treatment with the Debtors, each holder of an Allowed Senior Notes Claim shall receive its pro rata share of (a) the Class 3 Equity Distribution, and (b) the New Pace Holdco Loan Obligations.
- Class 4 (“General Unsecured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 5 (“Existing Securities Law Claims”) is impaired, presumed to reject and not entitled to vote on the Plan. Estimated recovery is 0%.
- Class 6 (“Existing Interests”) is impaired, presumed to reject, and not entitled to vote on the Plan. Estimated recovery is 0%.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Potter Declaration”), Craig Potter, the Debtors' Chief Financial Officer, detailed the events leading to Pace’s Chapter 11 filing.
The Potter Declaration states: "In the summer of 2018, Pace engaged an investment banking firm to raise new equity. The Company sought additional liquidity primarily to meet its commitments to launch its new automotive programs and fund associated working capital needs. By the spring of 2019, efforts to complete an equity raise had failed, and Pace began considering options to address its increased debtload and upcoming maturities under its Prepetition ABL Facility and Prepetition Term Loan Agreement. The Company ultimately determined that a sale or complete recapitalization presented the best path to maximize value for all of its creditors and other stakeholders. Accordingly, the Company engaged an investment banking firm to commence a marketing process. The investment banking firm reached out to 37 potential buyers and provided confidential evaluation materials to 20 of those parties. Based on those evaluation materials, four potential buyers submitted indications of interest to acquire the Company.
In January 2020, however, following disappointing sales in the last quarter 2019, the Company postponed its sale process. The decrease in sales was driven by softened demand in the lighting, barbecue grill and appliance markets and lower automotive industry sales due to in part to a 40-day strike by 48,000 General Motors employees. Additionally, the Companies profitability was negatively impacted by production inefficiencies incurred in the launch of clutch housings and other automotive parts on the timeline anticipated under its new contracts….Following months of hard-fought, arm’s length negotiations between the Debtors and their core lender constituencies, the parties reached agreement on the framework for the Proposed Restructuring Transaction, which the Debtors have determined is the most value-maximizing transaction available to the Company. In March 2020, the parties were negotiating the terms of the Proposed Restructuring Transaction, the Company’s liquidity situation became dire due to the spread of the COVID-19 pandemic in the United States, which resulted in, among other things, the issuance of stay-at-home orders by the governments of certain states in which the Company operates. The Company has had to temporarily close down its Harrison, PCG, Airo and Grafton Divisions after determining that these divisions constitute non-essential businesses under the applicable government orders. Given the negative effects of the Company’s temporary partial shutdown on its revenues, implementing a transaction that will allow the Company to maximize its value for the benefit of its creditors and other stakeholders is now more urgent than ever."
The following documents were attached to the Disclosure Statement
- Exhibit A: Pre-packaged Plan
- Exhibit B: Liquidation Analysis
Proposed Key Dates
- Plan Supplement Filing Deadline: Ten (10) days prior to the Plan/Disclosure Statement Objection Deadline
- Plan/Disclosure Statement Objection Deadline: May 14, 2020
- Combined Hearing: May 21, 2020
Liquidation Analysis (see Exhibit B to the Disclosure Statement for notes)
About the Debtors
According to the Debtors: "Pace is North America's leading full-service aluminum, zinc and magnesium die casting company. Pace offers end-to-end, nonferrous, die cast supply chain solutions, and a wide array of capabilities and services, including advanced engineering, tool and die fabrication, prototyping, precision machining, assembly, finishing and painting. Headquartered in Fayetteville, Arkansas, Pace operates the largest number and broadest range of clamping force die-casting machines in North America, which has positioned Pace uniquely to offer die-cast products for practically any customer requirement. Indeed, Pace is the only vertically integrated major die casting supplier in North America providing customers one-stop-shop services on a mass scale."
Corporate Structure Chart
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