American Motorcycle Dealer AMD 221 December 2017 | Page 6

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the undoubted growth opportunities
that it has. We have a fantastic line-up
of products, a very talented and
dedicated team, and even in a down
market, we will now be able to make
the investments needed to help our
brands, vendors and dealers prosper.
“The filing is based on a financial
transaction that will reset our capital
structure. It is one that will have very
little effect on our day-to-day
operations – certainly very little
negative impact.
“There will be no layoffs arising from
this, it is business as normal. The
maximum possible level of vendor
payables as permitted by the courts
will be met, and that is something we
Andy Graves, MAG CEO: “If we
were not profitable, then we
would not have been able to put
together this kind of capital
restructuring plan”
are going to be petitioning the courts
hard to allow us to maximize.
“The structure of the deal is a debt for
equity swap. This means that certain of
MAG’s lenders will be trading our
existing debt, the roughly $300
million, for equity in the reorganized
company. In other words, these
lenders will be the new owners of
MAG upon emergence. In addition,
this same group of lenders is providing
additional financing as a show of
support and belief in MAG. Without
this debt, our balance sheet is stronger,
and MAG is poised for growth.
“This means that LDI, Leonard Green
& Partners (LGP) and the other legacy
‘LDI and LGP
are taking
responsibility for
their judgements’
6
‘LDI financed the
transaction with a
fairly high leverage’
stake holders will no longer be a part
of the ownership equation. In taking
the hit, LDI and LGP are taking
responsibility for the judgements they
both made at the time of the merger.
“It is precisely because of the
profitability of our trading position and
the positive cash-flow generation
position of the business that the new
owners have been enthusiastic to
provide us with this solution.
“Moving forward, the business has the
necessary capital to transition through
the process and will have a
substantially improved capital and
reduced debt position once it
emerges.”
Graves thinks that the somewhat less
than $50m of long-term debt that the
company will be left with is a
“perfectly manageable sum for a
business of this size” and says it will
form part of the asset backed revolving
line of credit that the business has
access to for funding day-to-day
operations.
“In fact, the available line of asset
backed credit we will have access to
will go up to $115m, so we are well
equipped to fund operations and make
strategic decisions.
“Post restructuring we’ll have gone
from $400m of debt, $350m of which
was term debt, to less than $100m of
debt in total. That is certainly a very
manageable debt structure for us and
it removes the burden that restrained
us.
“In the meantime, we have access to
$125m of court approved Debtor In
Possession (DIP) financing to fund
ongoing operations.”
Some of the wilder internet reports
had suggested that MAG may have
filed under the pressure of total
indebtedness approaching $1 billion,
but Graves is keen to assure the
market that this is far from true and
explains that a look at the petitions
supports this fact.
“Unfortunately, a blogger took all of
the petitions and added the liabilities
numbers together, which is where the
incorrect figure came from. That
approach is not how one gets to the
total liabilities number. What folks
don’t understand is that this is a very
transparent process, everything is
public and accessible to anyone who
is interested. The danger, however, is
assumptions made by those who are
not versed in this legal process making
incorrect assumptions,” says Graves.
With regard to vendor payables,
MAG Structure
In the last 18 months, CEO Andy Graves has reorganized MAG’s
operations into a “forward facing” divisional structure ...
Distribution Group
President: Eric Cagle
Performance
Group
President: Brent Daldo
Accessories Group
President: Holger Mohr
Retail Group
President: Zach Parham
Off-Road Group
President: Chris Lindstrom
"We believe we are well
structured and will now be
well financed for the current
market environment and for
that environment in the
coming years.”
Continues on page 8 >
AMERICAN MOTORCYCLE DEALER - DECEMBER 2017
www.AMDchampionship.com