The die is cast for Pace Industries. The PE-owned company which manufactures die-cast parts filed Chapter 11 on April 13, 2020. As in so many other situations, the lenders to the business are standing – cheque book in hand – to undertake a debt for equity swap. According to what we’ve learned, the debt holders will get essentially all the equity in the restructured company for forgiving their loans and will commit $175mn for a debtor-in-possession (“DIP”) financing. A de-leveraged and reorganized Pace Industries hopes to be out of bankruptcy and operating normally by May.
This is likely to be a major disappointment for the only BDC with exposure to Pace: TCW Direct Lending. At year end 2019, TCW had $92mn invested in the 2020 Term Loan to the company and had only applied a modest discount. We had a Performing rating of CCR 2. We now have a rating of CCR 5 – Non Performing. That means TCW is not receiving some $8.6mn of investment income. Furthermore, more capital will need to be advanced if TCW participates in the DIP.
Advantage Data’s Syndicated Loan market price modules quotes the 2020 Term Loan trading at 83 cents on the dollar, suggesting a realized loss of nearly ($16mn) is possible, or even more depending on final terms.
As in so many other situations we’re seeing, Pace was in a weakened state even before the Covid-19 situation came along. The supply chain disruptions from the virus were too great for the company to handle, despite closing plants and laying off 70% of its employees. Faced with a liquidity crunch, the company – despite having high profile owners like Antares and Macquarie – had no alternative but to throw in the towel. Pace – in its recast form – will remain on our Under Performers list for the foreseeable future, but the nature of the investment will be radically different and require a much longer timeline till the final outcome of TCW’s investment – which began in 2015 – can be ascertained.