Motorsport Aftermarket Group in bankruptcy to exchange debt for equity

By Caroline Salls

Pittsburgh, Nov. 16 – Motorsport Aftermarket Group, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware to implement a comprehensive recapitalization that is expected to eliminate roughly $300 million in debt through a debt-for-equity exchange supported by holders of more than 90% of the principal amount of the company’s first-lien secured debt and its asset-backed lenders.

Motorsport said Monomoy Capital Partners, BlueMountain Capital and Contrarian Partners will lead its new owners group, and have deep experience in consumer products and lifestyle companies including distribution, retail and manufacturing.

“Through this process, which we have been working very hard on with our key lenders to accomplish over the past month, we will de-lever our balance sheet allowing us to more effectively compete in today’s evolving powersports market,” chief executive officer Andrew Graves said in a company news release.

“MAG’s businesses will continue to operate unaffected, and the company has sufficient liquidity to fund operations.

“Customer service and sales will continue, employees will receive wages and benefits as before, and vendors and suppliers will be paid in the ordinary course of business going forward.”

Motorsport said it expects to emerge from bankruptcy in the first quarter of 2018 “as a stronger, better-capitalized and competitive company.”

DIP financing

To support operations through this process, the company secured up to $135 million in debtor-in-possession financing from some of its current secured lenders.

The DIP financing is comprised of a $110 million senior secured super-priority asset-based revolving credit facility provided by Wells Fargo Bank, NA as administrative agent and collateral agent and a $25 million senior secured super-priority term loan facility provided by Wilmington Trust, NA as administrative agent and collateral agent.

The ABL facility will mature on the earliest of nine months from the bankruptcy filing date, the effective date of the company’s proposed Chapter 11 plan and the date of termination of the restructuring support agreement.

The term loan facility will mature on the earliest of the stated maturity date, the closing of any sale not consented to by the requisite lenders, the effective date of a Chapter 11 plan, the appointment of a trustee or examiner for the bankruptcy cases, conversion or the Chapter 11 cases or the date of an acceleration of the obligations.

Interest on the DIP revolver will accrue at Libor plus 500 basis points or the Base rate plus 400 bps. The DIP term loan facility will accrue interest at a rate of 12%.

“The U.S. powersports market has been in persistent decline for the past few years,” Graves said in the release.

“In response, MAG has been working diligently to adjust to the changing landscape and has implemented many initiatives to parallel today’s market. Unfortunately, the company’s long-term debt continues to be an impediment to success.”

In addition, Graves said, “Looking forward, MAG will be able to more aggressively capitalize on market and growth opportunities given our strong balance sheet post recapitalization.”

Debt details

According to court documents, Motorsport has $0 to $50,000 in assets and $100 million to $500 million in debt.

The company’s largest unsecured creditor is Sumitomo Rubber North America Inc. of Rancho Cucamonga, Calif., with a $3.48 million trade payables claim.

Other unsecured creditors with claims of $1 million or more include Pirelli Tire of Rome, Ga., with a $2.3 million trade payables claim; Arai Technical Services of Allentown, Pa., with a $1.55 million trade payables claim; Anthem Blue Cross of Indianapolis, with a $1.4 million health benefits obligations claim; Bridgestone/Firestone North American Tire, LLC of Nashville, with a $1.28 million trade payables claim; American Kenda Rubber Ind. Co. of Reynoldsburg, Ohio, with a $1.1 million trade payables claim; and Avon M/C Tyres North America of Stow, Ohio, with a $1.03 million trade payables claim.

Proskauer Rose LLP and Cole Schotz PC serve as the company’s legal counsel. AlixPartners LLP serves as financial adviser.

Motorsport Aftermarket is a Coppell, Texas-based independent manufacturer and distributor of branded aftermarket products and online retailer for the powersports industry. The Chapter 11 case number is 17-12442.

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