Performance Sports Group, creditors edge toward bankruptcy deal
Effort could ease way to $575 million sale to largest shareholder
Performance Sports Group and its creditors appeared to be working on a deal before Wednesday’s bankruptcy hearing in Delaware – a deal that, if approved, could help pave the way to acceptance of a $575 million opening bid from the Exeter-based sports equipment company’s largest shareholder.
PSG said that such a sale would be the best hope that creditors to get at least some of their money back, despite the claims raised by creditors, shareholders and the bankruptcy trustee.
PSG filed for Chapter 11 reorganization on Oct. 31 in both Delaware and Toronto. The filing came less than 29 months after the company’s listing on the New York Stock Exchange following a $145 million write-off in April, a class action lawsuit filed against it in May and announcements of delayed filings caused by an internal investigation into its finances in August.
The delayed filings eventually triggered a massive loan default on Oct. 29.
In the bankruptcy filing, the company also presented a plan to come out of bankruptcy at the end of February 2017 with the company intact. Sagard Capital Partners, which is the largest the largest shareholder in PSG, is the “stalking horse,” with a $575 million bid, combined with $361 million financing. Others can submit their bid too, but it would have to be presented by Jan. 4, 2017, for a Jan. 9 auction, with a closing target of Feb. 28.
But creditors, shareholders and the bankruptcy trustee all complained that the procedures gave Sagard an unfair advantage over other bidders and PSG didn’t try to market the company to other bidders, all charged.
But on Monday, PSG argued in a bankruptcy filing that, with a buyer in hand that would refinance all of the secured debt, as well as pay off some unsecured creditors, “is extraordinary by any measure.” And, the company said, allegations of insider self-dealing were “spurious and unfounded,” not to mention “reckless accusations.”
First, PSG argued, Sagard was only considered an insider under Canadian law, and that doesn’t trigger the heightened scrutiny required under American law.
Second, even if Sagard was considered an insider, the negotiations were at “arm’s length” and were often “contentious and heated.” PSG said it got several concessions, including a “delinking” of the sale and the financing.
Finally, PSG said, it didn’t have much of a choice. The company was in a crisis and had to act quickly. Facing a cash crisis and default and a “free-fall into bankruptcy,” the firm didn’t have time to really market the company and come up with other bidders. The other alternatives, raising junior capital to fund a plan, getting financing from its secured lenders, or raising out-of-court financing were either not realistic or not close to the “vastly superior … bird-in-hand” offer from Sagard.
On Monday, Ernst & Young the Canadian monitor, weighed in, and agreed that bidding procedures are “reasonable,” especially in light of a possible deal, at least between PSG and the creditors.