Patriot National files for bankruptcy; reorg would wipe out PennantPark BDC shareholders

Private credit managers hold both debt and equity in the debtor.

Patriot National, an insurance company service provider in which Cerberus Capital Management, TCW Asset Management and PennantPark hold investments, has filed for bankruptcy in a Delaware federal court.

The Fort Lauderdale, Florida-based debtor will implement a prepackaged reorganisation plan, meaning the company will be able to exit its Chapter 11 proceedings – which can be costly – more quickly. Per a November announcement, Patriot National will restructure by handing control of the company to Cerberus and TCW, including its private development company, TCW Direct Lending. Both firms were prepetition first lien lenders.

PennantPark BDCs PennantPark Investment Corporation and PennantPark Floating Rate Capital are Patriot National shareholders, according to their annual reports filed in November. Private funds PennantPark SBIC II and PennantPark Credit Opportunities Fund also held shares at one point, though it was not clear if the vehicles still hold the debtor’s shares.

The PennantPark vehicles will have their shares wiped out, according to the reoganisation plan submitted to the bankruptcy court. Patriot National held an initial public offering in January 2015, after which the PennantPark BDCs and funds exercised warrants, according to an SEC filing.

“The Company’s recapitalization under the [restructuring support agreement] and the [reorganisation plan], including a new lending facility, will provide the capital structure needed to revitalize operations and funds to grow the business,” John Rearer, chief executive of Patriot National. said in a statement.

TCW and Cerberus spokesmen declined to comment, while a representative for PennantPark could not be reached for comment.

Cerberus’s mid-market lending arm, Cerberus Business Finance, and TCW are parties to a November 2016 credit agreement under which Patriot National has access to a $30 million revolving credit facility and a $250 million senior secured credit facility, according to an SEC filing from the time.

The senior secured debt matures in five years and is priced at either LIBOR plus 7-7.25 percent; or an unspecified base rate plus 5-5.25 percent.

Money for the Cerberus investments came from myriad vehicles, including separate accounts with the Arizona State Retirement System, the Florida State Board of Administration, the Kentucky Retirement Systems and the Pennsylvania Public School Employees’ Retirement System. For its part, TCW’s BDC and the West Virginia Investment Management Board provided the capital, according to the SEC filing.

In November, Patriot National entered into a forbearance agreement with Cerberus and TCW. Patriot National had failed to deliver financial statements, missed a 1 November interest payment and failed to comply with financial covenants, according to another regulatory filing.

The bankrupt business offers services to insurance companies that help them mitigate risk and comply with regulations, according to Patriot National’s website.