Tuesday, September 17, 2019

Carlyle's Acosta to Restructure $2.7 Billion in Debt?

WSJ reported:

Acosta Inc. has hired law firm Kirkland + Ellis LLP to advise on talks to restructure some $2.7 billion in debt as the struggling marketing-services company faces a looming interest payment, according to people familiar with the matter.
The Carlyle Group bought Acosta in 2014 in a $4.8 billion deal.  Carlyle has $75 billion in dry powder to invest but it never throws good money after bad. 

Reuters reported Acosta's debt as highly leveraged and a potential concern for regulators in 2015.

Moody’s Investors Service puts leverage higher at more than 8.0 times.
S + P lowered its rating on Acosta debt in February:

The downgrade reflects the increased potential for a distressed exchange after the recent amendment to Acosta's credit agreement. While the company temporarily extended the majority of the commitments on its revolver by six months to March 26, 2020, the extending lenders reduced their total commitments by 5% and increased their pricing by 100 basis points. This will likely lead to further pressure on the company's already weakening cash flow. In addition, liquidity could become more constrained after a minority group of lenders chose not to extend their commitments beyond September 2019. 
It's September and at least one distressed exchange is in the works.  Sequa Corporation is another distressed Carlyle affiliate (based on 6-20-2019 debt rating).

Carlyle lost Carlyle Capital Corporation six months before the 2008 financial crisis.  It was massively leveraged and imploded when underlying asset quality deteriorated.

Update 11-10-19:   Acosta will declare bankruptcy and will be taken over by creditors.  The prepackaged Chapter 11 bankruptcy will place Acosta in the hands of creditors.  It's not clear how much money Carlyle pulled out of Acosta since 2014 (prior to turning it over to lenders and bondholders).