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Private Credit 

Max Reyes

Segun Olakoyenikan

This is the latest entry in a series about distress within private equity portfolios and liability management exercises (LMEs) those companies have engaged in or could engage in.

Platinum Equity is a name now synonymous with Incora, an aerospace supplier that was the focus of a lengthy trial that pit creditors against each other.

But Incora is far from Platinum’s only troubled investment. The fund, started in 1995 by Tom Gores, specializes in turning around struggling businesses using a strategy dubbed “M&A&O” — short for mergers, acquisitions, and operations, a unique spin on the typical phrase.

A 9fin review of Platinum’s portfolio found eight of its 57 current investments carry debt trading at or below 85 cents on the dollar, the metric we’re using to define distress for this series. That count excludes Incora, which filed for bankruptcy last year. Download the full data set here.

The tally is also not inclusive of Platinum investments that were distressed or otherwise troubled that the company exited within the last two years. Platinum sold out of two portfolio companies following distressed exchanges in 2023 and 2024.

The majority of the distressed names in Platinum’s portfolio are primarily concentrated in the firm’s fifth buyout fund. That fund, which closed in 2020, holds at least five of the private equity firm’s distressed companies.

Beyond Incora, the Fund V investments exhibiting signs of distress so far include Cabinetworks, Cision, Centerfield, United Site Services, SVP Worldwide, Oregon Tool and Biscuit International. The remaining two portfolio companies are Lifescan and Aventiv. Both of those investments belong to Fund IV, which Platinum closed in 2016.

Platinum Equity declined to comment for this story.

The investment climate took a different turn in 2020 following the pandemic and macroeconomic policies initiated in response to the crisis. One of such is the Fed’s hiking of interest rates to multi-year highs as part of measures to slow down the pandemic-induced inflation, a move that left borrowing much more expensive and heaped pressure on highly-leveraged companies.

At the time, companies such as United Site Services were dealing with highly leveraged capital structures. The largest provider of portable toilets in the US recorded a debt-to-EBITDA ratio as high as 9.2x in the second quarter of 2023. Earlier this year, the portable sanitation firm launched an LME with a double-dip structure to raise $300m of new money and push out maturities on the majority of its outstanding debts.

Paris-based Biscuit International stands out as the only non-US company on the list. Unlike United Site Services and Aventiv, which both initiated out-of-court restructurings this year, the European biscuit maker is yet to launch a plan to rework its debt. The pricing on its outstanding €110m second-lien loan due February 2028 is quoted in the low 80s, according to 9fin data.

Our findings dovetail with a review of sponsor-backed companies carried out by Moody’s last month. In that report, Platinum-backed firms ranked with the highest number and share of defaults, with 10 defaults out of 26 companies, or 38%.

Of those 10 defaults, two were among companies that defaulted twice since being taken private: Petmate and Incora. Platinum exited both of those companies, as well as Elevate Textiles and Yak Access.

Platinum’s exits have been mixed. In the case of Incora, it was the bankruptcy that prompted the move. Meanwhile, Platinum handed the keys to creditors after Petmate and Elevate Textiles carried out distressed exchanges.

Meanwhile, loans issued by some of Platinum’s distressed companies are already being traded with designations indicating they are governed by either a co-operation agreement or restructuring support agreement.

One of such companies is Cabinetworks. A group of lenders to the cabinet maker agreed to a co-op, according to a recent 9fin analysis of BWIC loan data. The binding agreement restricts each member from striking a deal that could hurt others—a popular strategy for preventing aggressive LMEs. The BWIC data also show that SVP Worldwide recently entered a restructuring support agreement with its term loan lenders. The sewing machine marker’s debt has been indicated at 28.5 over the past month, according to 9fin data.

While the private equity firm could be aggressive in the way it handles certain deals, it also has a history of initiating transactions that creditors consider satisfactory.

We’ve written before about how Yak was hailed by investors as a success story for Platinum, with the sponsor injecting much-needed liquidity into the company ahead of a sale to United Rentals, allowing creditors who took a haircut during an earlier restructuring to make back par.

Taken together, Platinum’s track record is mixed, pulling off daring turnarounds in some situations and ultimately walking away from missteps elsewhere.

A report by advisory firm Aksia from March 2022 on behalf of the Los Angeles City Employees’ Retirement System, reported that fund III (2011) had an IRR of 31.3%, fund IV (2016) 31.1%, the Small Cap Fund (2018) 30% and fund V (2019) of 49.5% at the time, and said Platinum funds had “generated strong and consistent return, albeit with slightly elevated loss ratios.”

By 2023, it would seem that fund IV and V were already showing declining IRRs: The New York City Police Pension Fund as of 30 June 2023 reported gains of $54.5m from $107.1m investment in fund V, which after four years of being invested works out to far less than a 49.5% IRR; and a gain of $24.9m on $35.5m invested in fund IV, also a step down from 31% IRR.

Platinum is set to grow its portfolio — warts and all — even further with the rollout of its sixth buyout fund, the largest one to date. While its yet to publicly announce the close of its latest buyout fund, 9fin reported in March of this year that Platinum Equity Capital Partners VI had already amassed $12.5bn of investor interest. Data compiled by Ropes & Gray in a report last month indicated the fund had grown to $12.6bn by its July close, making it the second largest private equity fundraise for the third quarter.

For comparison, the largest buyout fund raised in that period — New Mountain Partners VII — closed at $15.4bn, per the Ropes & Gray report.

Excel download of data for 9fin clients here: Platinum Equity Portfolio

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