Cenveo Corporation: Sold In Management Buyout

We’re trying to piece together the full story at Cenveo Corporation (renamed Cenveo Worldwide Corporation since 2018) which just announced a successful “management buyout”, as reported by a trade publication on July 11, 2022. Two related BDCs – Main Street Capital (MAIN) and non-traded but MAIN managed – MSC Income Fund – have been involved with the business since 2015. Initially the two BDCs were just senior lenders with $17mn advanced in senior loans.

However, by the time Cenveo defaulted and eventually filed Chapter 11 in 2018, total exposure had increased to $42mn – still all in debt. (We believe the extra monies were advanced to make acquisitions, as the company sought to become a “provider of digital agency marketing services”). In bankruptcy, though, the company – besides changing its name – shed much of its debt, which was swapped for equity. (We believe MAIN booked a -$12.3mn realized loss in the IIIQ 2018 relating to the restructuring). More recently, Cenveo has been shedding assets to return to its envelope manufacturing roots, as we discussed on May 6, and September 11, 2020. This might have provided the resources for the company to repay $10mn of senior debt in the restructured entity in the IIQ 2021.

That left the two BDCs only with $11mn of equity outstanding (roughly 5% of the total). This was valued as of March 31, 2022 at a (38%) discount, implying an unrealized loss of about ($4mn), split 56/44 between MAIN and MSC. Presumably, at the time of valuation, the BDCs must have been aware of the management buyout plan, but maybe not. As a result, we don’t know if the BDCs will be recovering the remaining $6.8mn of value, or a little more. It’s also possible the BDCs are involved in the financing of the latest buy-out.

The only certainty here is that in either the IIQ or IIIQ 2022 results, the equity stakes will be realized and that a loss is likely – potentially ending a 7 year saga. The amounts involved at this stage are not very material , but it seems that MAIN and MSC will not be recouping whatever losses were booked back in 2018 when Cenveo filed for Chapter 11, but something is better than nothing.

We’ll update – and probably complete – the Cenveo story when MAIN reports its results this quarter or next.