April 15, 2020 – The Court hearing the Pace Industries cases issued an interim order authorizing the Debtors to (i) access a $125.0mn senior secured super-priority asset-based revolving credit facility (the "DIP Revolver Facility"), of which approximately $92.1mn will be used to roll-up the entirety of the Debtors' prepetition ABL obligations, (ii) $21.0mn of a $50.0mn senior secured term loan facility (the "DIP Term Facility"), with the $29.0mn balance available upon entry of a final DIP order, and (iii) use cash collateral.
The Debtors' DIP motion states, “After extensive arm’s length negotiations, the Debtors chose to accept a DIP financing proposal from the DIP Lenders without commencing a formal marketing process for a number of reasons. First, the DIP Loan Agreements each contain favorable, below-market pricing terms for loans of the size and nature of the DIP Facilities, particularly in light of uncertainties in the global corporate debt markets caused by the spread of COVID-19. With respect to the roll-up of the Prepetition ABL Obligations on the terms set forth in the Revolver DIP Agreement and the Interim DIP Order, absent such roll-up, the Prepetition ABL Lenders and DIP Revolver Lenders would not have otherwise consented to the use of the Cash Collateral, the subordination of their various Liens under the DIP Facilities to the Carve Out, or to the extension of credit under the DIP Facilities to fund the Debtors’ critical working capital needs. Second, even if the Debtors were able to obtain DIP Financing offers from third parties (which they believe would be highly unlikely, if not impossible), the Debtors would have faced significant hardship in obtaining such financing without the consent of their prepetition lenders, as the Debtors hold few unencumbered assets to which a non-priming lien could attach. Finally, the Debtors determined that the expense involved in marketing the DIP Financing and seeking financing proposals from alternative lenders would exceed any potential savings they could secure over the financing contemplated by the DIP Loan Agreements.”
Key Terms of the DIP Revolver Facility
- Borrowers: Pace Industries, LLC, Pace Industries, Inc., Pace Industries of Mexico, L.L.C., Muskegon Castings, LLC, Alloy Resources, LLC
- DIP Lenders: Bank of Montreal Regions Bank
- DIP Facilities: $125.0mn senior secured super-priority asset-based revolving credit facility
- Roll-Up: All outstanding Prepetition ABL obligations (ie $92.1mn)
- Interest Rate: L+400bp per annum.
- Maturity/Termination Date: Both DIP Loan Agreements shall terminate on the earliest of:
- the date that is ninety (90) days following the Petition Date (the “Outside Date”);
- the date which is thirty (30) days following the entry of the Interim Order if the Court has not entered the Final Order on or prior to such date;
- the date of the Debtors’ receipt of notice of the acceleration of any of the DIP Term Loans and the termination of the commitments to make the DIP Term Loans resulting from the occurrence of an Event of Default (as defined below) (including, without limitation, the failure to meet any Chapter 11 Milestone by the applicable specified deadline);
- the date the Debtors’ terminate all DIP Revolving Commitments pursuant to Section 2.07 of the Revolver DIP Agreement;
- the date on which any of the DIP Loans become due and payable, whether by acceleration or otherwise;
- the date of consummation of a sale of all or substantially all of the Debtors’ assets pursuant to Section 363 of the Bankruptcy Code;
- the date of substantial consummation (as defined in section 1101(2) of the Bankruptcy Code) of a confirmed plan of reorganization in the chapter 11 cases; and
- the date of the filing of a motion by the Debtors seeking dismissal of any or all of the chapter 11 cases, the dismissal of any or all of the chapter 11 cases, the filing of a motion by the Debtors seeking to convert of any or all of the chapter 11 cases to a case under chapter 7 of the Bankruptcy Code, the conversion of any or all of the chapter 11 cases to a case under chapter 7 of the Bankruptcy Code or the appointment or election of a trustee under chapter 11 of the Bankruptcy Code, a responsible officer or examiner with enlarged powers relating to the operation of the Debtors' business (powers beyond those set forth in section 1106(a)(3) and (4) of the Bankruptcy Code) under section 1106 of the Bankruptcy Code. (such date, the “Termination Date”).
- DIP Upfront Fee: $250,000, payable on the date of entry of a final order with respect to the chapter 11 cases.
- Administrative Agent Fee: $25,000 payable on the Effective Date (as defined in the Revolver DIP Agreement) and each monthly anniversary of the Effective Date.
Key Terms of the DIP Term Facility
- Borrowers: Pace Industries, LLC, Pace Industries, Inc., Muskegon Castings, LLC, Alloy Resources, LLC
- DIP Lenders: TCW Direct Lending LLC, Cerberus ASRS Holdings LLC,Cerberus SWC Levered Loan Opportunities Master Fund, L.P., F3C Die Cast LLC, Cerberus Cavaliers Levered Loan Opportunities Fund LLC, Cerberus FSBA Holdings LLC, Cerberus AUS Levered Holdings LP, Cerberus KRS Levered Loan Opportunities Fund, L.P., Cerberus SWC Levered Holdings II LP, Cerberus ND Credit Holdings LLC, Cerberus Offshore Levered Loan Opportunities Master Fund III, L.P. Cerberus StepStone Credit Holdings LLC, Cerberus Redwood Levered Loan Opportunities Fund A. L.P., Cerberus Redwood Levered Loan Opportunities Fund B, L.P., Cerberus Levered IV Holdings, LLC, Cerberus ICQ Offshore Loan Opportunities Master Fund L.P.
- DIP Facilities: $50.0mn senior secured, super-priority multi-draw term loan facility, of which $21mn shall be available upon entry of the Interim DIP Order and $29mn shall be available upon entry of the Final DIP Order.
- Interest Rate: L+825bp per annum (of which 300 bp per annum is payable in kind).
- Maturity/Termination Date: Same as DIP Revolver Facility above.
- Closing Fee: The Debtors shall pay to the DIP Term Administrative Agent a closing fee, for the ratable benefit of the DIP Term Lenders, in an amount equal to $1,000,000. The Closing Fee shall be deemed fully earned and non-refundable upon entry of the Interim DIP Order, and payable on or prior to the Final Maturity Date.
- Loan Servicing Fee: $7,500 payable on the first Business Day of every month, which Loan Servicing Fee shall be deemed fully earned when paid.
Prepetition Capital Structure
As of the Petition date, the Debtors’ capital structure includes over $324.2mn in outstanding debt, consisting of (a) approximately $92.1mn 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%.
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