Resolute Investment first lien lenders to receive take-back paper and equity control under contemplated TSA, seconds continue to hold out
12th June 2023
Resolute Investment Managers is working to finalize a transaction support agreement (TSA) that would see its first lien lenders take majority control of its reorganized equity, according to three sources familiar with the matter.
Under the proposed terms, first liens would receive up to 95% of the equity, with second lien lenders in line to collect up to the remaining 5%, the sources noted. First lien lenders are also slated to receive USD 350m in take-back loans at SOFR+ 650bps and a 3% PIK consent fee, one of the sources continued.
The agreement is currently backed by more than 90% of the holders of the first lien loan, while holders of the second lien loan are not yet on board, the sources said.
The Kelso & Co-backed investment management company has been under pressure to address a loan maturity wall starting in 2024 amid deteriorating operating performance.
The issuer’s USD 544m first lien loan due 2024 was last quoted 72.9/75, in line with recent trades, according to Markit. The USD 89m second lien due 2025 is thinly traded, but was last quoted at 60/63 on 9 June, according to Markit.
The first lien group is organized with Gibson Dunn and Ducera and initially approached Kelso – which has taken out a number of dividends – with a proposal to inject funds into Resolute, but the request was met by the sponsor with staunch opposition, as reported. For its part, Resolute is working with Debevoise & Plimpton and Evercore as advisors, while second lien holders are advised by Houlihan Lokey.
Just last month, Standard & Poor’s downgraded the issuer’s credit rating to B- from B due to the company’s refinancing risks, noting that the company doesn’t have adequate liquidity to address the loan without a refinancing. The report, published 18 May, also noted that Resolute’s adjusted EBITDA declined 39% in 2022 due to market volatility and continued net outflows. “We therefore expect the company to operate with leverage, as measured by debt-to-adjusted EBITDA, above 7x over the next 12 months,” according to the report.
Moody’s Investors Service also cut the company’s rating to B2 from B1 last month and its second lien term loan to Caa1 from B3 citing the issuer’s deteriorating operating performance in 2022, which increased leverage and weakened its interest coverage. Moreover, tightening financial conditions will continue to constrain Resolute’s revenue growth and have a negative impact on its profitability and liquidity, the report stated.
Amid the challenges, projections call for the company to generate less than USD 100m in annual EBITDA, as reported. Although the company has noted in prior earnings calls that they are going to cut costs, management has said that it would not come at the expense of employee morale or growth.
Resolute declined comment. Representatives from Houlihan, Debevoise and Evercore did not return requests for comment.