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Sun Capital in $25m DIP deal

The turnaround specialist gave bankrupt calendar maker Lang Holdings a bankruptcy loan for up to $16m, which it later used as part of its bankruptcy bid.

Sun Capital Partners has acquired a controlling interest in bankrupt calendar maker Lang Holdings for $25 million and will own the company along side its original owner, fellow private equity firm Catterton Capital Partners.

“We saw a company with a good management team in a pretty good niche that was impacted by the economy and the fact that they had an over-leveraged balance sheet for a period of time,” Anthony Polazzi, a principal with Sun Capital.

Lang makers calendars with themes around sports, art and design and also makes greeting cards, back-to-school supplies and stationary. Lang occupies a niche within the calendar space as a maker of a specific theme for calendars – licensed art work and sports, Polazzi said. The company’s dominance of the specific niche helped make the investment attractive to Sun, he said.

“There’s companies that are focused on making calendars focused on pets, or women calendars, whatever the other segments are, they are not in direct competition with Lang,” Polazzi said. “That’s a dynamic we like a lot.”

Lang also has room to grow because it can pick move into the other segments of calendar making, he said.

Sun Capital does not usually partner with other private equity firms on deals, but in this case Catterton has held the company since 2003, and “they have a lot of knowledge and they wanted to stay involved in a way”. Catterton will keep some representation on the company’s board and “will stay involved in helping craft the strategy”, but Sun Capital “is the controlling investor and will take the lead role and help define the strategy going forward”.

Sun Capital made use of a debtor-in-possession strategy to help it take control of the company. The firm had extended Lang a bankruptcy loan for up to $16 million to help Lang operate through the bankruptcy process, known as a debtor-in-possession loan. The DIP loan gave Sun Capital time to perform due diligence on the company.

Sun was then able to use the DIP loan as a credit bid in the bankruptcy auction. A credit bid allows a DIP lender to bid the debt obligation against the company instead of bidding cash, Polazzi said.

Sun has used DIP lending as a means to secure control of other companies in the recent past, including some of its own portfolio companies. The firm re-acquired its portfolio company, Big 10 Tires, after it filed for bankruptcy. Sun bought back some of the company’s debt, extended a DIP loan for up to $3 million and re-acquired the company.