| Obligor profile | |
| Restructuring date | February/March 2025 |
| Post-exchange rating/outlook | CCC+/Negative/-- |
| Location/Primary industry/GICS | U.S./Capital Goods |
| Post-exchange total reported debt (change) | $1.215 billion (-$10 million) |
| Sponsor/owner | Platinum Equity |
| Forecasts (December 2025) | |
| Liquidity ratio (x)/Assessment: | >4x/Adequate |
| Debt to EBITDA* (x) | 15-17x |
| EBITDA to total interest* (x) | <1x |
| EBITDA to cash interest* (x) | <1x |
| *Adjusted by S&P Global Ratings. GICS--Global Industry Classification Standard. Source: S&P Global Ratings. |
Transaction Summary
Priming loan exchange; Double-dip
Oregon Tool Inc.’s (OT) restructuring included:
- A new money $156 million first-lien term loan to Oregon Tool Lux L.P., a newly formed Luxembourg subsidiary, and a non-guarantor restricted subsidiary under OT’s existing credit agreement (NewCo);
- Exchanging existing OT term loans for NewCo second-lien term loans;
- Exchanging OT senior unsecured notes for a mix of NewCo second-lien term loans and NewCo third-lien notes,
- Replacing OT’s existing $50 million revolving credit facility (RCF) with a $50 million NewCo RCF, and
- Extending the maturity on OT’s $150 million asset-based lending (ABL) facility.
Proceeds facilitated the debt exchanges, paid transaction fees and expenses, and boosted liquidity. As part of the transaction, NewCo loaned roughly $1 billion to OT, with that intercompany loan secured on a pari passu basis with OT’s term loans.
The NewCo debt is guaranteed on a secured basis by foreign subsidiaries that do not provide credit support for the existing OT term loans. We estimate that these entities represent about 55% of consolidated enterprise value (EV). The NewCo debt benefits from a “double dip” claim against OT’s domestic EV where 1) the obligors for the existing OT term loans guarantee and secure the NewCo debt on a pari passu basis (giving them an equal “direct claim” to this value) and 2) NewCo’s loan receivable from OT is pledged to secure the NewCo debt, providing it with a second, equal, “indirect claim” to this value.
In the initial exchange, lenders holding roughly 83% of OT’s term loans exchanged their loans for NewCo second-lien term loans at an aggregate par discount of about 6%, but we assume minority lenders outside of the steering group absorbed most of this haircut. These lenders also received certain paid-in-kind premiums. At the same time, certain senior noteholders agreed to exchange roughly 57% of this debt into a split of NewCo second-lien term loans and third-lien notes at a discount of about 18%.
Subsequently, other OT term lenders were offered the opportunity to exchange their loans at a discount of 18% into NewCo second-lien term loans. Altogether, more than 99% of OT term lenders exchanged their loans.
In connection with the restructuring, the foreign subsidiaries providing credit support for the NewCo debt also provided unsecured guarantees of the remaining OT senior unsecured notes.
OT Merger Corp. (dba Oregon Tool)
| Original debt structure | |||||||
|---|---|---|---|---|---|---|---|
| Original debt structure: | Exchange prices | Effective ranking in waterfall | Maturity (year) | Rate (%) | Principal (mil. $) | Pre-exchange prices* | Recovery estimates (%) |
| $150 million OT ABL | Par | 1 | 2026 | S+CSA+1.5 (grid) | 74 | N/A | N/A |
| $50 million OT RCF | Par | 1 | 2026 | S+CSA+4.0 | 15 | N/A | 50% |
| OT TL | Averages: Phase 1: 94.; Phase 2: 82 | 1 | 2028 | S+CSA+4.0 | 826 | 62.7 | 50% |
| OT sr. unsecured notes | Avg. 82 | 2 | 2029 | 7.875 | 300 | 40.31 | 10% |
*Prices are based on indicative mid-price. ABL--Asset-based lending. RCF--Revolving credit facility. TL--Term loan. CSA--Credit spread adjustment. S--SOFR (Secured Overnight Financing Rate). N/A--Not applicable.
OT Merger Corp. (dba Oregon Tool)
| Post-exchange debt structure | |||||||
|---|---|---|---|---|---|---|---|
| Post-exchange debt structure: | Exchanged from* | Effective ranking in waterfall | Maturity (year) | Rate (%) | Principal (mil. $) | Prices (on March 19, 2025)* | Recovery estimates (%) |
| $150 mil. OT ABL | N.A. | 1 | 2029 | S+CSA+1.5 (grid) | 0 | N.A. | N.A. |
| $50 mil. NewCo 1L RCF | OT RCF | 1 | 2029 | S+CSA+4.0 | 0 | N.A. | 95% |
| NewCo new money 1L TL | N.A. | 1 | 2029 | S+5.35 | 156 | 102.8 | 95% |
| NewCo 2L TL | OT 1L TL + OT notes | 2 | 2029 | S+CSA+4.0 | 824 | 76.4 | 40% |
| NewCo 3L notes | OT notes | 3 | 2029 | 7.875 | 71 | N.A. | 0% |
| OT sr. unsecured notes | N.A. | 4 | 2029 | 7.785 | 129 | 45.57 | 0% |
| OT TL | N.A. | 1 (legacy obligors only) | 2028 | S+CSA+4.0 | 3 | N.A. | 0% |
*Prices are based on indicative mid-price. Liens securing the OT ABL rank senior to liens securing other debt with respect to current assets of common obligors and junior to liens securing other debt with respect to fixed assets of common obligors. Liens securing all NewCo debt (first lien, second lien, and third lien) rank pari passu with respect to assets of existing OT term loan obligors with those securing existing OT term loans. CSA--Credit spread adjustment. S--SOFR (Secured Overnight Financing Rate). N.A.--Not available. 1L--First lien. 2L--Second lien. 3L--Third lien. TL--Term loan. Source: S&P Global Ratings.
Transaction Mechanics
Before the initial term loan exchange, the exchanging lenders extended the maturities of their existing OT term loans pursuant to amendments made by them to OT’s existing credit agreement (with the extended OT term loans divided among three new tranches). This extend-and-exchange tactic (also used by Physician Partners LLC, dba Better Health, in January) has been reported to have originated as a response to the recent Fifth Circuit Court of Appeals ruling in the Serta case, which rejected an interpretation of the open market purchase provision of many credit agreements often relied on to support previous priming loan exchanges. The credit agreements for the NewCo first-lien and second-lien term loans and the indenture for the NewCo third-lien notes include certain protections against future liability management transactions while the existing OT credit agreement was stripped of various covenants and other protections.
Impact On Recovery
Recovery prospects for the first-lien RCF lenders were boosted significantly by the enhanced guarantee and collateral coverage and the substantial reduction in first-lien claims in the new capital structure. The recovery rating on the NewCo RCF (and the NewCo new money first-lien term loans) is ‘1’ (rounded recovery estimate: 95%) compared with ‘3’ (50%) on the OT first-lien RCF under the previous debt structure.
Conversely, the recovery prospects for the small amount of unexchanged OT first-lien term loans were essentially wiped out with the recovery rating on this debt slashed to ‘6’ (rounded recovery estimate: 0%) from ‘3’ (50%) previously.
Exchanging OT first-lien term loan lenders also had their recovery prospects impaired because their new term loans have a second-lien position (behind the NewCo first-lien RCF and term loan) and because roughly $65 million in formerly unsecured notes was also exchanged for NewCo second-lien term loans. These factors more than offset the expanded guarantee and collateral support provided by NewCo and the NewCo foreign obligors. Our recovery rating on the NewCo second-lien term loans is ‘4’ (30%) compared with ‘3’ (50%) on the OT first-lien term loans before the restructuring. The combination of lower recovery prospects and the par haircuts included in the exchanges reduced the average recovery prospects for term lenders that participated in the initial exchange by about 44% and for those that participated in the subsequent exchange by about 50%. Differences in exchange haircuts may affect these estimates for individual lenders.
Exchanging unsecured noteholders on average have slightly higher recovery prospects on a pro forma basis, despite locking in a loss of about 18% on the exchange, due to the elevation of about half of their new loans into a second-lien position with a recovery rating of ‘4’ (30%) compared with ‘5’ (10%) previously. Differences in exchange haircuts may affect this estimate for individual lenders.
Lastly, recovery ratings on the unexchanged senior unsecured notes dropped to ‘6’ (rounded recovery estimate: 0%) from ‘5’ (10%) previously, which wiped out their recovery prospects under our recovery analysis.
Impact On Liquidity
The restructuring improved Oregon Tool’s liquidity by repaying borrowings on its RCF and ABL facilities and by extending most debt maturities until 2029.
This report does not constitute a rating action.
| Primary Contacts: | Steve H Wilkinson, CFA, New York 1-212-438-5093; steve.wilkinson@spglobal.com |
| George Yannopoulos, Toronto 4165072533; george.yannopoulos@spglobal.com | |
| Tyrone Daniel, New York 1-2124381101; tyrone.daniel@spglobal.com |
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