Range Parent (dba Robertshaw) has raised a new $218 million first out facility and an additional $10 million second out facility. Proceeds of the deals park an estimated $44 million on the balance sheet for working capital, while also replacing a $50 million ABL and $117 million super priority facility, according to S&P. The transaction dated Dec. 8 took place about a week after a group of lenders filed suit against the company and other investors in New York Supreme Court yesterday. The complaint alleges that the LME that the manufacturer of components and control systems conducted earlier this year left them in a deeply subordinated position and was done in violation of the implied covenant of good faith and fair dealing.
S&P yesterday downgraded the issuer to SD from CCC on account of the latest financing altering “the priority for the remaining second through fifth-out term loan facilities.”
The S&P downgrade reads:
- On Dec. 8, 2023, Range Parent Inc. (Robertshaw) entered into a debt-restructuring transaction with its financial sponsor One Rock Capital Partners, LLC (One Rock) and certain parties of its existing lending group. The company replaced its $50 million asset-based lending (ABL) facility and existing $117 million first-out super priority lending facility with a $218 million first-out facility as well as funded an additional $10 million to the second-out facility. About $44 million of proceeds (after debt repayment, accrued interest, prepayment premium and fees) were placed on the company’s balance sheet for working capital and to help fund the next two quarterly interest payments.
- In our view, the transaction is distressed and tantamount to a default because the incremental first-out debt effectively alters the priority for the remaining second through fifth-out term loan facilities.
- Therefore, we lowered our issuer credit rating on the company to ‘SD’ (selective default) from ‘CCC’.
- We also lowered our issue-level ratings on the company’s existing $373 million second-out term loan to ‘D’ from ‘CCC’ as well as the $73 million third-out, $23 million fourth-out, and $29 million fifth-out term loans to ‘D’ from ‘CC’.
ENGLEWOOD (S&P Global Ratings) Dec. 19, 2023—S&P Global Ratings today took the rating actions listed above.
The downgrade reflects another debt restructuring, which we view as distressed and tantamount to a default. We believe the participating lenders of the existing first-out super priority lending facility were adequately compensated as part of this transaction. The company’s financial sponsor and other lending parties will hold the $218 million first-out term loan. However, in our view, the existing second through fifth-out term loan facilities are less favorable than originally promised, constituting a default on these existing debt claims.
Despite this transaction, Robertshaw’s liquidity remains thin. The exchange offering that occurred earlier this year provided the company with about $40 million in additional liquidity to improve its operations through more favorable supplier terms, plant consolidation, and other operational efficiency improvements. However, in the approximately six months since the initial restructuring, Robertshaw has failed to show meaningful traction in its turnaround strategy. As a result, the company was not able to meet upcoming interest payments with cash from operations and had to seek external liquidity sources to avoid a conventional default. Although the new debt will provide capacity for its next two interest payments, we have substantial doubt if the company will become materially profitable over the next 6 to 12 months.
The company’s capital structure remains unsustainable. For the 12 months (LTM) ended Sept. 30, 2023, Robertshaw’s revenue declined about 11% and the company generated negative S&P Global Ratings-adjusted EBITDA margins along with negative free operating cash flows (FOCF) of about $60 million. In addition, about $80 million remains outstanding on the existing nonparticipating first-lien term loan. If more than $12.5 million remains outstanding on Jan. 28, 2025, the 2027 maturity on its super-priority debt facilities will accelerate and become due immediately. This springing maturity places significant risk of a conventional default or another exchange offering within the next year.
We have not reviewed recovery prospects on the company’s first through fifth-out term loans under the new capital structure. We will reassess our ratings on Robertshaw and its debt once we have reviewed the company’s amended capital structure, go-forward cash flow profile, liquidity position, and business prospects.
Head of Special Situations, LevFin Insights
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