A contentious debt restructuring at label maker Multi-Color has pushed lenders across Clayton Dubilier & Rice's portfolio to demand tougher protections, testing the private-equity firm's reputation as one of the industry's most creditor-friendly sponsors.
A contentious debt restructuring at label maker Multi-Color has pushed lenders across Clayton Dubilier & Rice's portfolio to demand tougher protections, testing the private-equity firm's reputation as one of the industry's most creditor-friendly sponsors.
CD&R's aggressive restructuring of label maker Multi-Color, which cut $3.8 billion of debt but left junior debtholders with 4.9 cents on the dollar, has pushed lenders across the firm's portfolio to demand tighter protections.
"Sponsors have seen that everyone has done this and there hasn't been a penalty," said Robert Miller, a University of South Dakota Knudson School of Law professor who specializes in corporate restructuring.
Creditors holding debt in CD&R portfolio companies — building materials maker Cornerstone Building Brands, pet products supplier PetSafe, scaffolding company Brand Industrial Services and software firm Cloudera — have discussed with advisers how to push for more lending protections and, in some cases, formed cooperation groups to negotiate in lockstep, according to people familiar with the matter.
The shift marks a departure from CD&R's experience in earlier restructurings. In late 2024, the firm said it would restructure mobility-services company Vialto Partners with unanimous first-lien lender support for a new capital injection and debt extensions. Now, lenders pushed back on the financing terms CD&R sought for its $10.3 billion acquisition of Bubble Wrap maker Sealed Air in March, forcing pricing concessions.
Founded in 1978, CD&R built a reputation for focusing on operational turnarounds rather than complex financial engineering, winning such lender-friendly standing that creditors demanded little protection in their dealings with the firm. When CD&R began buying up Multi-Color's debt last year ahead of its restructuring, lenders were not alarmed, some of the people said.
CD&R's holdings of Multi-Color's equity and debt gave the sponsor leverage to drive the restructuring from different parts of the capital structure. At one point in the bankruptcy, it pitted three creditor groups against one another, threatening to raise capital with third-party financiers at the expense of some existing lenders, the people said. During negotiations, CD&R's longtime head of capital markets, Mike Babiarz, resisted calls for tighter loan covenants suggested by some first-lien and junior lenders to avoid similar deals if Multi-Color had to restructure again.
Junior Lenders Recover 4.9 Cents on the Dollar
CD&R eventually agreed to a plan that reduced Multi-Color's debt by $3.8 billion and extended maturities to 2033. The firm committed $400 million in fresh capital and took a haircut on the debt it acquired, but retained control despite the bankruptcy. First-lien lenders received full recoveries, while junior debtholders received an estimated 4.9 cents on the dollar. More than 99 percent of voting stakeholders accepted the plan, and CD&R and a group of existing secured lenders injected $889 million in new common and preferred equity upon emergence.
Cooperation Groups Form Across the Portfolio
Rattled by the outcome, creditors to CD&R-backed Cornerstone Building Brands signed onto a cooperation group with advisers to negotiate in lockstep against the company about plans to address its nearly $5 billion debt pile. Around the same time in March, lenders pushed back on the financing terms CD&R was seeking for its $10.3 billion acquisition of Bubble Wrap maker Sealed Air, resulting in pricing concessions. Both market conditions tied to the Iran war and the Multi-Color bankruptcy played a role in creditors' reluctance, the people said.
A slowdown in leveraged buyouts in recent years has fueled a backlog of unsold portfolio companies, prompting sponsors to extend their hold on struggling businesses through liability management transactions that have stoked tensions with the creditors they rely on for financing. Lenders have responded by signing onto cooperation agreements early, sometimes years before debt matures, to negotiate more aggressively with sponsors.
CD&R has been able to continue tapping capital markets for higher-quality borrowers, including refinancing debts in U.K.-based fuel service company Motor Fuel Group and home-health provider Gentiva Health Services. Both deals were oversubscribed, one of the people said.
The Multi-Color bankruptcy has strained some lending relationships and pushed creditors to treat CD&R more like its aggressive private-equity peers. In the eyes of some lenders, the firm is no longer the friendly sponsor it once was — a shift that could raise borrowing costs and reduce financial flexibility for CD&R and its portfolio companies as the leveraged finance market tightens.
This article is for informational purposes only and does not constitute investment advice.
