Performance Sports Group Ltd., a leading developer and manufacturer of high performance sports equipment and apparel, announced that, in order to facilitate a financial and corporate restructuring through a going-concern sale of substantially all of the Company's assets, it has filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the District of Delaware and commenced proceedings under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice. The Company's applications under Chapter 11 and the CCAA are subject to the supervision and approval of the U.S. and Canadian courts (the "Restructuring Process"). During the Chapter 11 and CCAA proceedings, it is expected that the Company's operations will continue uninterrupted in the ordinary course of business and that day-to-day obligations to employees, suppliers of goods and services and the Company's customers will continue to be met.
Asset Purchase Agreement
In connection with the Restructuring Process, the Company has entered into an asset purchase agreement (the "Purchase Agreement") with an acquisition vehicle to be co-owned by an affiliate of Sagard Capital Partners, L.P. and Fairfax Financial Holdings Limited (collectively, the "Purchaser"), pursuant to which the Purchaser has agreed to acquire substantially all of the assets of the Company and its North American subsidiaries for U.S.$575 million in aggregate, assume related operating liabilities and serve as a "stalking horse" bidder through the Restructuring Process. The Purchase Agreement sets the floor, or minimum acceptable bid, for an auction under the supervision of the Courts, which is designed to achieve the highest available or otherwise best offer. The proceeds to be received on the closing of the acquisition should be in excess of the Company's outstanding secured indebtedness and are expected to provide meaningful recoveries to the Company's other stakeholders. A final sale approval hearing is expected to take place shortly after completion of the auction with the anticipated closing of the successful bid to occur in the first quarter of calendar year 2017, subject to receipt of applicable regulatory approvals and the satisfaction or waiver of other customary closing conditions.
Debtor-in-Possession Financing
To provide working capital for the Company's operations and to fund the auction and sales process during the Restructuring Process, the Company's existing asset-based lenders and the Purchaser have committed to provide the Company with an aggregate of U.S.$386 million in debtor-in-possession ("DIP") financing. Subject to approval of the Courts, U.S.$25 million of the DIP financing is available to the Company immediately, with the balance of the financing to be available upon the Courts' approval at a second hearing, expected to be held on or about November 30, 2016. The Company will use the DIP financing, once approved by the Courts, to, among other things, refinance its term loan credit agreement, dated as of April 15, 2014, as amended (the "Term Loan Credit Agreement") and fund day-to-day operations in the ordinary course of business.
The Company intends to use the proceeds from the DIP financing to pay for all goods and services from vendors provided after the Chapter 11 and CCAA filing date in accordance with their current terms. In addition, the Company has filed a number of customary pleadings seeking authorization from the Courts to pay certain pre-petition obligations, support its business operations and transition them through the Restructuring Process. These include the payment of employee wages, salaries and benefits, and certain obligations to vendors.
In connection with the proceedings to be commenced today in the Ontario Superior Court of Justice under the CCAA, the Company intends to seek approval for the appointment of Ernst & Young Inc. as monitor. In that capacity, Ernst & Young Inc. will work with management throughout the Restructuring Process while overseeing the CCAA proceedings and reporting to the Court.
Financial and Strategic Review Undertaken by the Special Committee
The U.S. and Canadian filings are the culmination of a previously announced financial and strategic review undertaken by the special committee (the "Special Committee") of the board of directors (the "Board") of the Company. The Special Committee, comprised of independent directors, were advised throughout the process by Centerview Partners LLC as its independent financial advisor. The Special Committee's mandate included a review and evaluation of strategic alternatives and oversight over discussions with the Company's lenders under the Term Loan Credit Agreement and the ABL credit agreement, dated as of April 15, 2014, as amended, (the "ABL Credit Agreement" and together with the Term Loan Credit Agreement, the "Existing Loan Agreements").
Following completion of the Special Committee's strategic review, after careful consideration of all available alternatives and having given due consideration to the interests of all stakeholders, the boards of directors of the Company and each of its North American subsidiaries, upon the unanimous recommendation of the Special Committee and with the assistance, input and advice from legal and financial advisors, have determined that entering into the Purchase Agreement and seeking protection under Chapter 11 and the CCAA is in the best interests of the companies and should ultimately result in improvements to the business' liquidity and capital structure which are necessary to put the business on a firm financial and competitive footing in the current business environment.
On August 15, 2016, the Company announced that its Annual Report on Form 10-K, including its annual audited financial statements for the fiscal year ended May 31, 2016 and the related management's discussion and analysis (collectively, the "Annual Filings") would not be filed by the required filing date of August 15, 2016. Concurrently with such announcement, the audit committee (the "Audit Committee") of the Board announced that Richards Kibbe & Orbe LLP and Alix Partners had been retained as independent legal counsel and financial advisor, respectively, to the Audit Committee to conduct an internal investigation in relation to the finalization of the Company's financial statements and related certification process (the "Investigation"). While the Audit Committee and its advisors have worked diligently to advance the Investigation, at this time, it remains uncertain when it will be completed.
The Company obtained a 60-day extension through October 28, 2016 from the lenders under the Existing Loan Agreements to file its Annual Filings along with the Company's first quarter filings. In light of the fact that the Investigation remains ongoing and the timing for finalizing the Annual Filings remains uncertain, the Company was unable to deliver the requisite annual audited financial statements resulting in defaults under the Existing Loan Agreements as of October 28, 2016.
Additional information is available on the restructuring page of the Company's website, www.PerformanceSportsGroup.com, on EDGAR at www.sec.gov, and on SEDAR at www.sedar.com. Court filings and other information related to the Court-supervised proceedings are available at a website administered by the Company's claims agent, Prime Clerk, at https://cases.primeclerk.com/PSG. Similar information is also available at a website maintained by the Company's Court-appointed monitor in Canada in accordance with the CCAA proceedings, Ernst & Young Inc., at www.ey.com/ca/psg.
Centerview Partners LLC has been engaged as strategic financial advisor and investment banker. Alvarez & Marsal has been engaged as restructuring professional, and Brian J. Fox, Managing Director with Alvarez & Marsal, has been appointed as chief restructuring officer, effective immediately. Stikeman Elliott LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are serving as Canadian and U.S. legal advisors, respectively. Bennett Jones LLP is serving as counsel to the independent members of the Board.
Performance Sports Group Ltd. is a leading developer and manufacturer of ice hockey, roller hockey, lacrosse, baseball and softball sports equipment, as well as related apparel and soccer apparel.