Project Stealth

Situation

The Company experienced a decline in performance due to COVID-19 impacts on commercial airline traffic. The Company’s liquidity suffered further pressure from requalification requirements from their largest customer and a poorly executed consolidation of two machining facilities in the UK in 2022. The Company ran a sale process in 2022, which was ultimately unsuccessful and resulted in the engagement of a CRO in late 2022, a UK bankruptcy filing in early 2023, and a US bankruptcy filing under Chapter 11 in mid-2023.

Engagement

“G2 was engaged as a financial advisor to the Lenders (syndicate of 5 lending institutions) in Spring of 2021 in order to complete a Phase 1 assessment of the Company’s financial forecasts and its ability to return to pre-COVID levels of financial performance. The Company began running out of liquidity in late-2021 as G2’s risk adjusted forecast had predicted, and G2 was re-engaged at that time for Phase 2 work, which included routine reviews of the Company’s financial forecasts and liquidity projections, evaluating strategic alternatives, and monitoring the progress of the sale process.

The Company continued to miss its financial projections and the targeted sale transaction fell through in Fall 2022. The Company engaged a CRO / restructuring team to manage liquidity, provide updated financial forecasts, and pursue strategic alternatives. The UK facilities were consuming cash because the consolidation efforts were not yielding the targeted results, and the Company entered a bankruptcy process for the UK entities in Spring 2023. Substantially all of the UK assets were sold in 2 separate transactions in mid-2023.

In July 2023, the Company filed for bankruptcy under Chapter 11 with a prepack plan in which the Lenders and the Sponsor would contribute capital and restructure the balance sheet. The 1st Lien Lenders provided DIP financing to fund the BK process. A few weeks post-filing, the Company released an updated financial forecast that was materially worse than the prior version and the Sponsor backed out of their commitments made in the prepack plan, creating a new condition that they would only contribute additional capital if the Company secured price increases with its 3 largest customers prior to exiting bankruptcy.

The post-filing bankruptcy strategy pivoted to a 363 auction process with the Lenders acting as a stalking horse via credit bid. They auction process resulted in one qualifying bid from Cadence Aerospace (owned by Arlington Capital Partners), to which substantially all of the Company’s assets were sold in November 2023. “

Outcome

Substantially all of the UK assets were sold through the UK administration process and substantially all of the US assets were sold through a 363 auction, resulting in the continued operations of the Company’s facilities under new ownership.

The 1st Lien Lenders recovered ~30-40% of their principal debt outstanding (excluding accrued interest) through the asset sales. This was the only near-term exit option available for the Lenders at the time, with the alternative option being a credit bid in which the Lenders would own the Company through a 2+ year turnaround in hopes of recovering additional value through a longer hold period. This longer-term option carried significant execution risk on the Company’s ability to effectuate a successful turnaround upon emergence from bankruptcy.