Private Credit Firms to Swap Debt for Equity in Stressed 48Forty

Private credit lenders are poised to take control of pallet company 48Forty Solutions, about a year after providing $1.75 billion of debt to support Summit Partners’ acquisition of the business, according to people with knowledge of the matter.

A group of lenders including Antares Capital are set to take equity in 48Forty under a proposed restructuring slated to close by the end of the year, said the people, who asked not to be identified discussing private information. Other lenders include KKR & Co., BlackRock Inc. and Carlyle Group Inc., the people said.

The deal would shed about $1 billion of liabilities from 48Forty’s balance sheet as lenders swap their debt for a stake, the people said. As part of the proposal, lenders including Antares will inject around $75 million of new debt into 48Forty, they said.

Representatives for Antares, KKR, BlackRock and Carlyle declined to comment. 48Forty and Summit didn’t respond to requests for comment. 

In cases where borrowers are struggling with their liabilities, private credit firms are more frequently swapping their debt positions for equity stakes to try and prevent losses. While swaps can produce upside, they also offer more unpredictable returns than direct loans, which are designed to provide stable income over time.

Lenders proposed a debt restructuring for 48Forty earlier this year. The company, which was already paying the majority of the interest on its debt in kind, stopped paying interest in August, according to the people.

FS KKR Capital Corp., a fund jointly managed by KKR and Future Standard, marked down the value of a loan to 48Forty to about 46 cents on the dollar in the third quarter, from around 86 cents a year ago, according to a filing.

With the restructuring, plans to cut costs could include shuttering multiple pallet recycling plants, the people said, though no decision on closures has been made. 48Forty, which provides recycled wood pallets and pallet management services across the US and Canada, currently has 73 plants, according to its website.

Lenders are also looking to appoint a new board for the company, the people said. Antares and KKR will each have two appointments, while Carlyle and BlackRock will jointly agree on one appointment, and first-lien lenders will all agree on another, they said. The last board seat will be reserved for the company’s chief executive officer. 

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