These deals often deliver fantastic returns for LPs in Platinum’s buyout funds, and there are plenty of examples where the lenders that make those deals possible also see good returns. But Platinum has also been known to push creditors to the brink — and sometimes beyond.

Yak attack

Platinum bought Yak, which makes wooden access mats used in construction projects, in 2018 for about $1.1bn back in 2018. It financed the deal in the syndicated loan market, at relatively high leverage.

The company eventually came under pressure during the pandemic, leading to what many thought could be a painful restructuring.

Source: Platinum Equity

But after injecting new equity and securing a sale to United Rentals a few months later, Platinum ultimately gave lenders that funded the buyout close to full recovery, even after accounting for the fairly steep haircut they took during the restructuring, according to 9fin sources.

“Creditors got paid out at par, which was great,” said a source familiar with the situation. “For the most part, Platinum is a long-term investor and stands by its thesis.”

But the Incora trial shows how the cost of standing by that thesis can sometimes be borne by creditors. The case, which we’ve been covering in detail (see our latest story here) is a perfect example of why some debt investors have vowed to never do business with Platinum again.

“There are two types of good sponsors,” said a leveraged loan portfolio manager. “The ones that figure out a way to get an equity return while debt investors get paid out at par, and the sponsors that find a way to get an equity return partially as result of investors’ loss. Platinum will go both ways.”

For its part, Platinum Equity declined to comment for this story. And if its LPs feel sorry for these debt investors, they’re not showing it: they’ve allocated billions of dollars to its new buyout fund.

So who’s right? It depends on who you ask.

Industrial muscle

The Yak case is a prime example of Platinum’s operations-focused strategy: the firm focuses on getting the right people in place, with the expertise to steer the ship, according to a managing director from a global placement advisory firm.

“There's generally something wrong with the companies they buy, and a slug of equity alone won’t fix it,” he said. “They're hard-nosed, but they have a reputation for knowing what they're doing.”

That doesn’t always make these deals an easy sell when it comes to getting lenders on board, though. Yak was a polarizing credit when its buyout debt was syndicated — so much so that we know of at least one investment firm that now uses it as a case study for new analysts.

Yak’s strength was its niche focus: the company rents heavy-duty mats that allow excavators and other machinery to safely traverse difficult terrain, such as boggy or marshy land. These are often used in construction projects in the natural gas and utilities space, and Yak was leaning into a rise in energy-related contracts when Platinum acquired it.

The flipside is that Yak was also highly exposed to just a couple of sectors — some of them highly cyclical — and it didn’t have a particularly diversified product offering. These vulnerabilities were exposed when the one-two punch of the Covid pandemic and Russia’s invasion of Ukraine dampened enthusiasm for the energy projects that were supposed to fuel the company’s growth.

Nevertheless, Platinum seemed to recognize one thing that others missed, or perhaps didn’t appreciate enough.

“The takeaway is that there's always a buyer for a scaleable business that is a leader in its own market,” said a leveraged loan PM. “There's been some headwinds in that business, but they are the leader, and a bigger player can scale it.”

Source: Platinum Equity

Platinum doubled down on this thesis in 2023, when it backstopped a $121m equity injection as part of a restructuring agreement that reduced Yak’s debt burden by $500m and exchanged existing loans into new loans due in 2028. That fresh slug of capital nearly matched Platinum’s initial $175m equity investment in the company.

The 2023 equity injection came as something of a surprise to lenders. Some sold out of the name at a discount ahead of the restructuring, and now wish they had stuck it out.

“With the benefit of hindsight, that equity injection is probably a bit of a tell that something was different here,” said the loan PM. “That big of an equity check amid a restructuring is pretty unique.”

Some lenders involved in the restructuring received preferred and common equity as well as a pro rata share of takeback paper, according to sources familiar with the process. The restructuring deal resulted in a 35%-40% haircut for lenders depending on their position, the sources said.

About a year later, Platinum managed to sell the company. United Rentals issued $1.1bn of new bonds in March to acquire Yak and take out its existing debt; the haircut loans were paid back at par, and the appreciation of the equity made up for the writedown lenders took in the restructuring.

“It was a nice surprise,” said another lender familiar with the reorganization. “It’s going to fully cover the preferreds, and leave some value to common equity.”

Repair shop

One of the reasons the Yak equity injection was surprising to lenders is because Platinum has been accused of doing the opposite before: of not investing enough equity to begin with, or of taking its chips off the table too quickly.

For example, when Platinum acquired Yak its initial equity injection represented just 17% of the total enterprise value. The rest of the funding came from the debt markets.

Another classic Platinum move is the quick-draw dividend: with BlueLine Rentals in 2013 and Cision in 2020, the sponsor paid itself a dividend just days after the buyout debt was syndicated, funding the payout with risky PIK debt.

Cision hasn’t been a great success story so far, and was recently downgraded. But BlueLine Rentals was a big score — as with Yak, the sponsor sold it to United Rentals and booked a nice return for its investors.

Label maker Multi-Color was another Platinum triumph. The sponsor bought the company in 2019 and merged it with its portfolio company WS Packaging, in a deal that doubled revenue and made it a bigger market player. It then sold to CD&R in 2021.

Investors are hoping similar exit paths develop for Platinum’s other portfolio companies such as cabinet manufacturer Cabinetworks Group and sewing machine maker SVP Worldwide, which are also leaders in their respective fields.

But there are plenty of headwinds to deal with. Lenders to Platinum’s portable toilet company United Site Services recently banded together amid poor earnings, and will be hoping that a letter of support from the sponsor can help turn things around.

On a smaller scale, Platinum is also kicking in some $20m of new equity into prison phone company Aventiv Technologies while trying to find a buyer. The sponsor also injected $50m of new equity into pet products seller Petmate as part of an ongoing restructuring.

Incora turbulence

There’s still time for happy endings in some of these troubled situations. What debt investors want to avoid is a repeat of Incora, which has showcased the strong-arm tactics that Platinum is willing to use to protect its equity.

Incora was formed in 2020 through the merger of Wesco Aircraft and Pattonair. When the company started struggling for liquidity in 2022, Platinum led an effort to raise new funding by priming existing debt investors with new debt provided by other lenders.

The new debt wasn’t enough to save the company — Incora eventually filed for bankruptcy, leaving the primed debt investors to pick up the pieces.

Source: Platinum Equity

Lenders are accusing Platinum of giving these new investors (including Silver Point and Pimco) preferential treatment and unfairly denying existing lenders the opportunity to participate in the new funding.

Priming deals like this are often made possible by loose debt covenants, which have become more commonplace in recent years.

Platinum deals generally err on the looser end of the spectrum (see our legal team’s latest report on Husky Injection Molding for an example), but some buysiders said the sponsor is now attempting to soften its reputation with investors by tightening its credit documents.

Still, it’s what sponsors actually do with such covenants that really matters. “Just because a doc is tighter to start, doesn’t mean the one enforcing the doc won’t change their mind when things turn,” said one buysider we spoke to for this story.

Money talks

While debt investors may disagree with Platinum’s aggressive use of the debt markets, the firm’s reputation for using all the tools at its disposal to preserve equity value and maximize returns is clearly working for its LPs.

Even in today’s tough fundraising environment for private equity firms, Platinum has attracted $12.5bn for its sixth buyout fund — it’s even raising new money for a vehicle targeting opportunistic private credit deals, as we recently reported.

“They've had very strong returns for limited partners in those [private equity] funds,” said the placement advisor we quoted earlier. “Because they're dealing with tough companies they can be very aggressive, but at the same time, if you're a fund-level investor you've been making money.”

Scenarios such as Yak, where Platinum is able to pull distressed companies out of the mud and secure a decent exit, may help keep debt investors onside. But when push comes to shove, lenders know that all sponsors have a greater duty to their LPs than they do to creditors.

“I don’t look at Platinum any differently today than I did before this string of successes it has had,” said the loan PM. “I still assume that when we’re in a situation with Platinum, they are more than likely going to figure it out at your detriment.”

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