Quinpario Acquisition Corp. paid nearly $540 million to acquire Milwaukee-based Jason Industries in 2014. That same year, Jason had more than $700 million in revenue and its sales had grown for several years coming out of the Great Recession.
By the end of 2019, Jason was a much different company.
It reported net sales of $337.9 million last year, which excluded $90 million from the North American fiber solutions business and almost $43 million from the Metalex business, both of which were divested in 2019.
Jason also divested its European fiber solutions business in 2017 and consolidated 10 facilities in the last three years.
While all those actions left the company with a more streamlined and focused operation, they did not get rid of the $420 million in debt incurred as part of the 2014 acquisition.
“The company’s current, over-levered capital structure and substantially all of its funded debt obligations were incurred in connection with the acquisition,” Chad Paris, chief financial officer of Jason Industries, wrote in a bankruptcy court filing.
To make matters worse, the company has seen declining demand for many of its end markets. Milsco, a Milwaukee-based subsidiary, makes seats for Harley-Davidson motorcycles along with other industries. Harley shipped 213,000 motorcycles last year, down from 270,000 in 2014.
The coronavirus pandemic has only compounded Jason’s problems. In April 30 financial projections, disclosed as part of the restructuring process, Jason estimated Milsco revenues would be down 22.7% from last year to $105.4 million. Revenues for Osborn, which makes brush, polishing and abrasive products for a number of industries, were projected to decrease 16.2% to $168.9 million.
Jason filed for Chapter 11 bankruptcy earlier this week after originally announcing an agreement earlier this month with lenders that called for the filing.
At the time of the filing, Jason had $368.5 million in debt, including $278.6 million on a first lien term loan and $89.9 million on a second lien term loan.
“Despite efforts to right-size the company’s cost structure, operations continue to be plagued by high operating leverage and a sizable amount of fixed costs, including interest payments under the company’s funded debt facilities,” Paris wrote in his filing.
One of the challenges facing the company is a potential $46 million cash payment due to first lien lenders on Aug. 31. Jason sold its North American fiber solutions business last year for $85 million and is required to pay lenders the proceeds if they are not used for reinvestment purposes. Without the bankruptcy filing, the required payment would be looming on the horizon, but the company projects it will only have around $9 million in cash as of Aug. 31.
Jason has been trying to solve its balance sheet and liquidity issues since the middle of last year. The company worked with Moelis & Co. to find a new money equity investor and with BMO Capital Markets Corp. on a sale process.
A total of 15 parties were engaged in the equity process and eight signed nondisclosure agreements, but just one provided a written indication of interest by a March 18 deadline.
On the sale side, BMO reached out to 32 potential buyers, 19 signed NDAs and there was just one written proposal.
With no buyer or new equity, the company turned to working out a deal with its lenders, entering into a series of forbearance agreements this spring. Jason needed to essentially work out a long-term solution with its first lien lenders and try to strike a deal between the first and second lien lenders. The company was successful on the former but came up short on the latter.
The deal the company eventually reached would sell all of Jason to a group of the first lien lenders. The second lien lenders could get up to 10% of the new company’s equity if they vote to accept the plan.
The agreement would also delever Jason’s balance sheet by around $250 million and provide a new $75 million first lien term loan, a $50 million junior lien convertible term loan and a $30 million revolving facility.
Jason says that with court approval it will be able to honor all customer programs, continue to pay employee wages and benefits without interruption and pay for goods and services provided to the company.
“Directly addressing our balance sheet will enable Jason and its operating businesses, Osborn and Milsco, to build upon our improved operational foundation and reap the benefits of recent cost-reductions and new business wins,” said Brian Kobylinski, chief executive officer of Jason. “We thank our lenders, employees, customers and suppliers for their continued support throughout our process. We will emerge an even stronger company with the opportunity to realize its full potential.”
