(Bloomberg) -- Wall Street firms are racing to corral the debt of a little-known Wisconsin window covering producer in preparation for a potential restructuring fight that’s likely to pit them against each other.
A loosely organized group of debt holders preparing for talks with Clearlake Capital Group-backed Springs Window Fashions LLC split into two factions in recent weeks, according to people with knowledge of the matter. One is mostly composed of bondholders and the other is largely loan holders, said the people, who asked not to be identified because discussions are private.
The groups are now effectively competing against each other to provide restructuring proposals for Springs’ $2.2 billion debt load, the people said.
The standoff is the latest example of how struggling companies can benefit from the types of creditor in-fighting that has grown common in the era of permissive debt documentation. The deals for Springs Window that the groups are contemplating call for lenders to provide new money, swap debt at below-par prices and reserve better terms for negotiating parties, the people said. These kinds of terms are all hallmarks of recent debt market brawls, the people said.
Breakaway investors including Centerbridge Partners are working with Houlihan Lokey and Wachtell Lipton Rosen & Katz and amassed a large enough position in the company’s loan due in 2028 to push through amendments to credit documents, the people said. In recent weeks, that group closed membership to other lenders who wish to join, they added.
In a move to ward off further defections, remaining members of the old group, led by Davis Polk & Wardwell, executed a cooperation agreement last week that binds them to act together in upcoming debt talks, Bloomberg reported. However, the effectiveness of the pact is somewhat muted, because Springs Window can pursue borrower-friendly measures such as moving assets and layering on additional debt without creditor consent, the people said.
The older group held around 40% of the company’s term loan debt and roughly 70% of unsecured notes as of early last week, the people added. Whichever group is rebuffed by Springs Window will likely get pushed down the repayment line, the people added.
Messages left with Springs, Clearlake, Wachtell and Davis Polk were not returned. Perella Weinberg Partners, which is advising the Davis Polk group, also didn’t respond to a request for comment. Representatives for Houlihan and Centerbridge declined to comment.
The company doesn’t have material debt maturities until 2028, but creditors began to organize amid fears over the firm’s liquidity levels, the people said. Springs’ debt has whipsawed in recent weeks as creditors sought to establish their positions.
The company’s 6.5% bond due 2029 jumped 4.5 cents on the dollar to 53.5 cents as of Friday, according to Trace. Meanwhile, the company’s roughly $1.6 billion term loan due 2028 has sunk around 10 cents this month to 74 cents amid creditor fears that the dueling proposals will be something of a race to the bottom to cut the most debt, leaving both groups with lower recoveries.
Any deal is likely to slash Springs’ debt burden while preserving Clearlake’s equity position, the people said.
--With assistance from Jill R. Shah.
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