MSD Performance has filed for Chapter 11 bankruptcy in order to facilitate its ongoing search for a buyer, according to documents filed Thursday.
One potential buyer would be Z Capital Partners, which already holds a majority stake in MSD’s outstanding debt through its Senior Prepetition Facility, according to a bankruptcy filing. The firm has been increasing its stake in the facility since May and had entered talks to purchase all of the debtors’ assets. MSD’s other lenders “could not reach a consensus on the proposed Z Capital transaction before the expiration of the forbearance period on September 6, 2013”, according to a bankruptcy filing.
“The Debtors remain hopeful, however, that negotiations with Z Capital or any other interested bidder will continue in connection with a court supervised sale process,” according to the filing.
MSD’s struggles began with its acquisition of several add-on companies beginning in 2005, which it financed through an amended and restated credit agreement. Those acquisitions occurred at the top of the M&A market, which amplified the firm’s balance sheet issues when the automotive industry became weakened by the economic downturn. MSD eventually restructured its debt into its current prepetition facility in 2009.
“Though the company’s revenue continued to grow, because of pricing pressure caused by increased market competition and the company’s product mix shifting to lower margin revenue, gross margins continued to decline from 2009 through 2012,” according to the filing. “Its significant debt burden continued to restrain liquidity and further limited the Company’s ability to grow.”
Lenders that hold Series A stock through MSD’s prepetition facility include entities managed by Z Capital Partners, Madison Capital Funding and Golub Capital. Z Capital Funding holds a majority of the 6500 Series A shares.
As of 5 September, the company had approximately $91.9 million outstanding through the prepetition facility.
Z Capital specialises in investing in mid-market companies in need of turnaround, restructuring and bankruptcy, according to its website. In July, Dow Jones reported that the firm was approaching its $500 million target for Z Capital Special Situations Fund II.