Oaktree pawns KKR...again
Anyone who's read Moyer's Distressed Debt Analysis might remember the example in the introduction where Oaktree scooped up a failed KKR buyout, then flipped it for a profit. I was amused to see this article today:
"After courting collapse for months, Masonite International Inc. made a prenegotiated bankruptcy filing on Monday...The filing by Masonite, which New York private equity firm Kohlberg Kravis Roberts & Co. owns,was no surprise...The buyout shop acquired Masonite for roughly $2.7 billion in April 2005...The restructuring would essentially cede control to holders of Masonite's senior secured debt, with Centerbridge Partners LP and Oaktree Capital Management LP the largest such lenders...KKR sank $552 million of equity into the buyout."
The artcle does point out that KKR will get some control through its debt arm, and that it was able to shove some shares off on its coinvestors.
history repeats itself
The world has changed. And we must change with it.
Which investment bank is representing Masonite?
how bout a link to the article stalking horse
.
Venture to guess how large of a position KKR has in the bank debt? :)
Perella Weinberg represents the debtor, Lazard represents the firstliens.
Not exact article but contains necessary info:
http://online.wsj.com/article/SB123604754173215843.html
I didn't post a link because I accessed it through the Daily Deal via LexisNexis. I can only post the whole article, so I will.
After courting collapse for months, Masonite International Inc. made a prenegotiated bankruptcy filing on Monday, March 16, with a proposal to wipe out nearly $2 billion in debt.
The Tampa, Fla., doormaker filed for Chapter 11 in the U.S. Bankruptcy Court in Delaware in Wilmington with 16 affiliates. Its Canadian businesses filed for protection under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice on Monday, as well.
The filing by Masonite, which New York private equity firm Kohlberg Kravis Roberts & Co. owns,was no surprise. The company had announced on March 3 that the filing was coming. A hearing on first-day motions will be held on Tuesday .
In its petition, Masonite listed about $1.6 billion in total assets and $2.6 billion in total debts, including securities held by more than 500 holders.
This marks the first Chapter 11 filing by a portfolio holding controlled by KKR in this downturn. The buyout shop acquired Masonite for roughly $2.7 billion in April 2005.
The restructuring plan would enable Masonite to dramatically reduce funded debt to up to $300 million upon completion of the plan, and reduce annual cash interest costs by about $145 million, the company said in a statement. As of the petition date, Masonite's total funded debt of $2.2 billion consisted of $1.47 billion in senior secured claims, about $770 million in senior subordinated notes and $6.3 million of other funded debt.
Under the terms of the agreement in principle with senior secured lenders and senior subordinated noteholders, Masonite's existing senior secured debt would be converted on a pro-rata basis into a new senior secured term loan of up to $200 million and a new second-lien pay-in-kind loan of up to $100 million. The senior subordinated notes would be converted to 2.5% of the common equity in Masonite plus warrants for 17.5% of the company's common stock.
The restructuring would essentially cede control to holders of Masonite's senior secured debt, with Centerbridge Partners LP and Oaktree Capital Management LP the largest such lenders. Holders of senior secured claims are expected to recover 37.9% under the plan, while senior subordinated noteholders can recover 4.8%, according to filings. All other unimpaired claims can recover 100%.
KKR's buyout fund had written off its investment in Masonite as of last year. But KKR's publicly listed credit business, KKR Financial Holdings LLC, may emerge with some ownership through some Masonite debt it owns.
KKR sank $552 million of equity into the buyout. It later sold some shares to institutional co-investors Alpinvest Partners NV of the Netherlands and Sculptor Investments s.a.r.l. of Luxembourg. Management co-invested $47 million, a portion of which went toward repurchasing shares held by KKR.
The company said it has received "strong support" from its bank lenders and bondholders on the plan. Roughly 75% of holders of senior secured debt and 83% of holders of senior subordinated notes due 2015 have locked into the agreement.
"The deal is a very firm deal," said debtor counsel Richard Cieri of Kirkland & Ellis LLP.
Masonite went ahead with a prenegotiated bankruptcy to ensure implementation of the restructuring plan. "Outside of a bankruptcy, they needed 100% of votes, but inside they only needed two-thirds," said Jonathan Henes, also of Kirkland & Ellis. "It's just an easier threshold to meet."
The company said all trade creditors would be unimpaired. As of March 12, it had more than $150 million in cash to continue operations.
Besides Cieri and Henes, Masonite is represented by Christopher Marcus and Chad Husnick at Kirkland & Ellis. Debtor co-counsel is Daniel DeFranceschi, Jason Madron and Katish Forune of Richards, Layton & Finger PA in Wilmington, Del.
Perella Weinberg Partners LP is serving as financial adviser, and Alvarez & Marsal North America LLC is the restructuring adviser.
We're seeing quite a bit of this. Rival private equity firms are buying large senior debt positions (often at cents on the dollar) in struggling private equity investments - and by "struggling" I mean companies with good fundamentals and long term prospects but are victims of the current economic environment and their capital structures. The PE debt holders then put the pressure on the equity holders to file for a pre-packaged Chapter-11 proceeding where, if damage is to the extent that the senior debt is impaired, the PE debt holders will convert their senior to equity in the newly formed cap structure post Chapter-11. Teh pre-packaged process also serves to preserve as much value in the company while the bankruptcy process is ongoing. If they're nice, they offer the original equity holders the opportunity to "buy back in" or "pay to play" with a much more managable cap structure.
I would think that if you weren't afraid to step on a few toes and piss alot of people off, this would be a great way to pursue a fund strategy in the next few years.
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