A motorcycle-products company controlled by Indianapolis-based business-holding firm LDI Ltd. LLC has filed for Chapter 11 bankruptcy after racking up about $440 million in debt. And its reorganization plan calls for replacing LDI as majority owner.
Motorsport Aftermarket Group, known as MAG, and its 18 affiliated companies filed the bankruptcy plans Wednesday in Delaware. The Coppell, Texas-based company also disclosed a recapitalization plan that it says is expected eliminate about $300 million in debt.
MAG is a manufacturer, distributor and online retailer of aftermarket products for the powersports industry. It owns some of the biggest brand names in the motorcycle business, including parts and apparel distributor Tucker Rocky, Vance & Hines, Roland Sands Design, Motorcycle Superstore and J&P Cycles.
LDI has been involved with a MAG’s predecessor company since 1989 and took over majority ownership through a merger in 2014. LDI owns 59 percent of the company, according to bankruptcy documents.
MAG has served as LDI's highest-profile company. LDI chairman and retired CEO Andre Lacy is an avid motorcycle rider.
MAG’s proposal calls for a debt-for-equity swap that will give creditors an equity position in in the company. According to the plan, the company will “emerge with new owners and a new board of directors.”
Emily Krueger, vice president of administration for LDI, confirmed to IBJ in an email that LDI’s ownership in MAG will cease if the bankruptcy plan is approved by the court.
“The Board of Directors of Motorsport Aftermarket Group (MAG) has approved a restructuring plan, after which LDI’s ownership in MAG will terminate along with other equity holders,” she said in a statement. “MAG’s Board and LDI have worked to ensure that MAG will remain a going concern with the ability to serve customers and preserve jobs.”
If approved, the bankruptcy will leave LDI, which invests in middle-market businesses, with just two portfolio companies: Minneapolis-based health care manufacturer UltiMed and Portland, Oregon-based supply-chain manager OIA Global.
New York City-based Monomoy Capital Partners, Greenwich, Connecticut-based Contrarian Capital Management and New York City-based BlueMountain Capital Management will lead the new ownership group for MAG, the company said.
MAG CEO Andrew Graves said the plan will allow the company and its subsidiaries to continue business as usual and meet payroll.
“The U.S. powersports market has been in persistent decline for the past few years,” he said in written comments. “In response, MAG has been working diligently to adjust to the changing landscape and has implemented many initiatives to parallel today’s market. Unfortunately, the company’s long-term debt continues to be an impediment to success.”
Graves said “we and our key creditors are committed to what will hopefully be a short bankruptcy case.”
In bankruptcy documents, MAG said it had less than $10 million in assets but owes 50 to 99 creditors between $100 million and $500 million.
Online publication Asphalt & Rubber, which follows the motorcycle industry, said the bankruptcy is “certainly one of the most important” stories to happen in the industry this year.
MAG and its affiliates built up much in the debt in 2014 through a series of loans. But since that time, their annual sales have fallen roughly 20 percent, by about $175 million, and yearly earnings have fallen from about $46 million to $20 million, Asphalt & Rubber estimated.
Asphalt & Rubber said MAG’s difficulties “should be seen as a bellwether on the state of the American motorcycle industry,” which has been contracting for years.
The biggest unsecured creditors are Sumitomo Rubber North America, which is owed nearly $3.5 million, and Pirelli Tire, which is owed $2.3 million. Five other creditors are owed at least $1 million.
MAG was expected to be an important contributor to LDI's portfolio. When it took control of the company in 2014, Lacy said the acquisition would roughly double the size of LDI’s existing motorcycle business, which produced a “substantial portion” of LDI’s 2013 revenue of more than $1 billion.