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Stanadyne LLC – Automotive Parts Manufacturer (Controlled by Automotive SPAC Specialist Kensington Capital Acquisition & UK’s The Smithfield Group) Files for Bankruptcy $280mn of Funded Debt, Citing Rising Interest Rates, COVID and Supply Chain Issues


February 16, 2023 – Privately held Stanadyne LLC and three affiliate debtors (“Stanadyne“ or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware lead case number 23-10207 (Judge John T. Dorsey). Jacksonville, NC-based Standadyne, “a global automotive technology leader in engine-based fuel and air management systems*," is represented by Andrew L. Magaziner of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include: (i) Hughes Hubbard & Reed LLP as general bankruptcy counsel, (ii) Kroll, LLC as financial advisors and (iii) Kurtzman Carson Consultants LLC as claims agent. 

* In 2004, private equity firm Kohlberg & Company acquired Stanadyne from American Industrial Partners for $330.0mn. Numerous sources list Kohllberg as the Debtors' current owner, although Kohlberg itself lists its Stanadyne investment as "realized." In 2019, Stanadyne, then clearly still owned by Kohlberg, acquired Pure Power Technologies, Inc from automotive SPAC specialist Kensington Capital Acquisition and UK-based The Smithfield Group Limited. The current board composition suggests that it is fact still Kensington Capital Acquisition and The Smithfield Group that maintain ownership. As noted in the structure chart below, the Debtors are owned by three entities with names that reflect the Stanadyne/Pure Power amalgamation and members of the Pure Power management. Current board members, and signatories of the Debtors' Chapter 11 petitions include: Julian Ameler (Kensington AND Smithfield's), John Arney (Kensington AND Smithfield), Anders Petterssen (Kensington, also a onetime Chairman of Stanadyne PPT Group Holdings, Inc.). Also involved at Kensington is the former Pure Power Technologies Chairman Justin Mirro.

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. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Cerberus Business Finance, LLC (a curious $281.1mn "bank loan unsecured deficiency" claim, see "Prepetition Indebtedness" below where this is pretty clearly described as secured), (ii) Pension Benefit Guaranty Corp. ($unknown) and (iii) Ford Motor Company ($9.3mn "core" claim).

Goals of the Chapter 11 Filings

The Pinson Declaration (defined below) provides: "The Debtors filed these Chapter 11 Cases because they will not be able to outrun their current interest rates, which have crippled the Debtors and drained liquidity since the rapid rise in their variable rates. At their current debt service levels, the Debtors could not sustain operations. They thus needed to commence these Chapter 11 Cases to hit the reset button, and to give them the breathing room needed to be able to reorganize and emerge as financially stable and improved companies."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “PinsonDeclaration”) [Docket No.12], John Pinson, the Debtor’s CEO provides: “As with many companies, the COVID-19 pandemic negatively impacted the Debtors’ operations. Supply chain issues and lockdowns led to an approximately $37 million decrease in revenue for 2020. Subsequent supply chain interruptions for the company and its customer base, including the global chip shortage, have constrained company sales during the market recovery, putting additional stress on company cash and resulting in a loss in revenue of approximately $26 million in 2022.

Coupled with the lost revenue attributable to the COVID-19 pandemic, the Debtors have simply not been able to outrun a significant rise in the variable component of the interest rates that they must pay under the Financing Agreement. These rate increases have pushed the Debtors’ interest rates into the teens, with potentially more rate hikes on the horizon. With these rate hikes, the Debtors’ debt service obligations for 2023 are expected to total approximately $39 million, a number that is simply unsustainable for the Debtors to be able to continue to operate.

Battling the sharp rise in their interest rate obligations, the Debtors faced severe liquidity constraints in the weeks leading up to the Petition Date. Had the Debtors made all required debt service payments in December and early January, they would have run out of money.

In November 2022, the Debtors began engaging Cerberus in good-faith negotiations.

Prepetition Indebtedness

The Debtors are party to a May 2017 "Financing Agreement" with Cerberus Business Finance, LLC, (“Cerberus”), as collateral agent and administrative agent for the Prepetition Secured Lenders. Pursuant to the Financing Agreement, the Prepetition Secured Lenders have made terms loans totaling $248,488,344.84 and revolving loans totaling $25,000,000, for a total current principal balance of $273,488,344.84. Interest accrues pursuant to a variable interest rate and is due monthly at the beginning of each month. The Debtors made all required interest payments, through and including the interest payment due at the beginning of November 2022. The dates on which interest and principal were due from December 1, 2022 – February 1, 2023 have been extended.

The Prepetition Secured Lenders purport to have first priority liens on substantially all assets of Stanadyne LLC, Stanadyne PPT Holdings, Inc., and PPT, as well as a pledge of 65% of Stanadyne LLC’s ownership interests in its non-Debtor affiliates located in Italy and India.

The Debtors also have unsecured debt consisting primarily of trade debt, core return debt explained further below, pension and supplemental employee retirement plan obligations.

About the Debtors

According to the Debtors: “Stanadyne is a global automotive technology leader in engine-based fuel and air management systems. We specialize in pioneering technologies in gasoline and diesel fuel injection systems for the engines that make our world move, and in aftermarket and remanufactured components that help keep those engines on the road. Our best-in-class products offer superior quality and a competitive edge, delivering power, performance, and efficiency, and enabling our customers to stay ahead of rapidly evolving emissions and consumer demand.

Founded in 1876, our experience is rooted in the foundation of the automotive industry, and we’ve been a trusted partner serving some of the most well-known brands for more than 60 years. In 2019, we acquired PurePower Technologies, a leader in engineering and remanufacturing diesel injectors, turbochargers, valves, and other components for OEM and the aftermarket.

Our focus today is in designing, engineering, and enabling solutions for our customers with our diverse global team. Headquartered in Windsor, CT, USA, we have design, engineering and manufacturing facilities in the United States, China, Italy, India, United Arab Emirates, and a worldwide network of aftermarket service dealers and distributors.”

The Pinson declaration adds: "The Debtors design, manufacture and supply best-in-class powertrain pumping, injection, air and fluid management products and control solutions. The Debtors’ core products include fuel injectors, pumps, and other components necessary for diesel and gasoline internal combustion engines (ICEs), including gasoline direct injection pumps, diesel common rail pumps, diesel rotary pumps (mechanical and electronic), diesel fuel injectors (new and remanufactured), remanufactured diesel turbochargers and exhaust gas recycling systems, and high-pressure diesel common rail connectors.

 The Debtors serve both the original equipment market and the aftermarket, with revenues split broadly equally. Within these segments, the Debtors serve both the on-road and offroad markets. With respect to the on-road market, the Debtors supply parts for passenger vehicles, light duty vehicles (e.g., pickup trucks), medium duty vehicles (e.g., delivery trucks), and performance aftermarket vehicles. With respect to the off-road market, the Debtors supply parts for agriculture (e.g., tractors), construction (e.g., bobcats), power generation and utility vehicles. The Debtors have a very stable revenue stream, with many longstanding customers. Stanadyne’s customers include Tier 1 original equipment manufacturers that are household names in the automotive industry.

As of the Petition Date, the Debtors’ collective workforce in the United States is comprised of approximately 468 employees and approximately 120 temporary employees."

Corporate Structure Chart

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The post Stanadyne LLC – Automotive Parts Manufacturer (Controlled by Automotive SPAC Specialist Kensington Capital Acquisition & UK’s The Smithfield Group) Files for Bankruptcy $280mn of Funded Debt, Citing Rising Interest Rates, COVID and Supply Chain Issues appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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