Sports equipment maker Performance Sports Group Ltd. plans to file for court protection from bankruptcy Monday and will lay out a rescue proposal involving its largest shareholders valued at more than $500-million (U.S.).
Two sources confirmed the Exeter, N.H.-based manufacturer of Bauer and Easton sporting goods will file a "structured" plan with courts in Canada and in Delaware after missing a Friday deadline to file its year-end financial statements.
As part of the plan, PSG's largest shareholder, Sagard Capital Partners LP, is expected to team with Fairfax Financial Holdings Ltd. and Brookfield Asset Management Ltd. to fully pay off the company's $440-million (U.S.) bank debt, a source said.
The investors are also expected to provide emergency funding through a debtor-in-possession loan, giving it additional resources to continue operating while it works on a plan. The full financing is expected to exceed $500-million, another source said.
Any proposal tabled with the courts could be supplanted if other potential investors come forward with a more lucrative offer.
Court protection under U.S. Chapter 11 rules and Canada's Companies' Creditors Arrangement Act would protect the company from being forced into bankruptcy by creditors while it works out a restructuring plan.
PSG hired investment advisers in August to work on strategic alternatives for the company, and a variety of financial players have circled the company.
Monday's expected filing doesn't come out of left field: the company has been on the clock since late summer.
After PSG did not submit its 2016 financials to regulators by Aug. 15 because of the ongoing internal investigation of its accounting, it was granted a 60-day extension from its creditors. PSG's new deadline to file was Oct. 28. The company said it was trying to finalize its documents "as soon as practicable," although it said in mid-August that "it is uncertain when this will occur."
Failure to file its annual report on time is expected to result in a default, PSG said in a previous disclosure.
It also had to deliver its fiscal first-quarter results for the three months ended Aug. 31 by Oct. 28, as required under its amended credit agreements.
It has been clear that PSG has been in financial distress since the spring.
On March 8, the company slashed its forecast for adjusted earnings per share for the fiscal year ended May 31, revising the metric from between 66 and 69 cents (U.S.) to between 12 and 14 cents.
PSG attributed this weakened outlook to the bankruptcy of a large U.S. sporting-goods retailer, the decline in future sales as a result of softness in the baseball and softball market, and additional bad debt reserves for certain U.S. hockey customers.
By June, it had lowered its 2016 guidance even further, saying it expected to report a loss in adjusted EPS.
In April, PSG reported a net loss of $188-million for its third quarter ended Feb. 29. The company wrote off $145-million of goodwill from its baseball unit, a revelation that its purchase of Easton may not have been worth the $330-million PSG paid for it two years earlier. It finished the quarter with just $2-million of cash.
PSG said its independent directors formed a special committee in August and have retained U.S. investment bank Centerview Partners LLC to review the company's strategic alternatives and assist in its ongoing talks with its lenders.
As of Feb. 29, the company had about $439-million in debt on its books, with the bulk being a term loan that matures in 2021. PSG has been trying to find ways to cut its operating costs and reduce its debt load.
PSG's largest shareholder, Sagard, is owned by Canada's wealthy Desmarais family, which owns 17 per cent of the stock. It has struck separate confidentiality agreements with Fairfax Financial Holdings, which owns none of PSG's shares, and Brookfield Asset Management, which owns 13 per cent of the company's shares.
A restructuring deal could result in a change of ownership of the company, depending on the final terms of the restructuring. PSG is currently dual-listed on the Toronto and New York stock exchanges. It was previously owned by private equity investor Kohlberg & Co., which bought the company in 2008 from sporting goods giant Nike Inc., which had owned it since 1995.
Former PSG chairman Graeme Roustan, who announced in August he was considering a bid for the company, said Sunday he will challenge Sagard's plan to take control of PSG because the Desmarais family is in a conflict of interest. Through another entity, the Desmarais family's Power Corp. is an investor in Adidas AG, owner of Bauer's biggest hockey gear competitor, CCM.
Mr. Roustan added he left the board in 2012 when PSG was "in excellent financial condition" and he is "sickened" to see it now filing for bankruptcy protection.
He said he will "enter the process, if there is one" but did not explain what he plans to do.
A Performance Sports spokesman did not respond to a request for comment on Sunday.