Throughout the day, we have talked to several people and your humble editor has a better understanding about the Lumileds pre-packaged Chapter 11 filing. The keyword being ‘pre-packaged.’
Lumileds has been a highly leveraged company since 2018 and their Board of Directors has been looking at ways to deleverage. The Board agreed to take a proactive approach to restructuring debt to strengthen the balance sheet. With this plan, their debt will drop from $1.7B to $400M, a massive deleveraging.
According to the press release, Matt Roney, CEO, stated, “Over the past few years, we have been hard at work transforming our cost structure and innovation pipeline, which has allowed us to capitalize more effectively on future market trends as a leader in the lighting industry.”
How did they do this?
The first lien lenders will trade their debt for equity which in essence, removes all equity from Apollo Management. In addition, the first lien lenders will loan Lumileds up to $275M for continued operations. This debtor-in-position operating financing will convert to a five-year exit term loan once Lumileds comes out of Chapter 11.
In talking to our sources, we learned that the prepackaged chapter 11 will not affect vendors, employees or customers. It will continue to be business as usual. Once complete, Lumileds will be in a liquid position. The deal required two-thirds of the first lien lenders to approve, and we have been told that Apollo was supportive of the restructure. Since the deal is pre-negotiated, Lumileds expects to exit Chapter 11 within approximately 60 days.
The announcement cited COVID related issues and the crises in Ukraine. We further learned that the automotive business, when combined with aftermarket, is the largest unit within Lumileds. All automotive in Ukraine has obviously dried up and Lumileds voluntarily stopped doing business in Russia because of the war.
The press release states, “The Company has sought court approval to continue to pay all valid amounts owed to vendors and suppliers as they come due. In addition, the Company expects that employees will continue to receive their usual wages and benefits without interruption.”
Lumileds_Aug29_Press Release