Welcome to the 158th Pari Passu newsletter.

In today’s edition, we’re looking at Oregon Tool, a global manufacturer of cutting systems and outdoor power equipment backed by Platinum Equity. Oregon Tool’s February 2025 liability management exercise, along with Better Health’s in January, stands out as one of the first two “extend-and-exchange” transactions designed to work around the 5th Circuit’s Serta Ruling. Oregon Tool’s transaction is unique in that it follows this framework while blending aspects of traditional LME structures, including the liquidity-raising of an uptier, collateral reshuffling of a dropdown, and enhanced protections of a double dip. 

For this piece, we supplemented public filings with additional insight from individuals familiar with the transaction. These conversations provided valuable context on the structuring and rationale behind Oregon Tool’s LME, helping clarify aspects that have not yet been fully detailed in public reporting.

We’ll start by detailing Oregon Tool’s end-market issues, post-LBO debt profile, and the impact of the two factors on liquidity. We’ll then review Serta’s ruling and its impacts on the broader LME ecosystem before diving into the unique structuring behind Oregon Tool’s transaction.

Recent LME editions: Better Health, Bausch, Quest, American Tire Distributors, Saks

Oregon Tool

Oregon Tool, Inc. is a global manufacturer of professional cutting tools and outdoor equipment components, best known as the world’s leading producer of saw chains and guide bars. The company is headquartered in Portland, Oregon, and its roots trace back to 1947 when its founder, Joe Cox, invented the modern saw chain [1]. Over the next several decades, Oregon Tool would grow into the dominant supplier of cutting systems for forestry, lawn, and agricultural markets. 

Today, Oregon Tool’s portfolio includes the flagship Oregon brand (saw chains and bars) along with a suite of complementary business lines such as Woods (agricultural attachments) and ICS (concrete cutting systems). In 2015, which was Oregon Tool’s last year as a public company, it reported three segments: FLAG, FRAG, and Corporate and Other [2]. FLAG, which stands for Forestry, Lawn, and Garden, manufactures cutting chains, guide bars, and other components for use in chainsaws and lawnmowers. Brands that would fall under this umbrella include Oregon, Carlton, and Merit. FRAG, which stands for Farm, Ranch, and Agriculture, manufactures various attachments for tractors for mowing, cutting, clearing, etc. FRAG products are primarily sold by the Woods brand, but overlap also exists with various FLAG brands. Contrary to the name, the Corporate and Other segment primarily consists of Oregon Tool’s Concrete Cutting and Finishing (CCF) products, sold by ICF [2]. 

In 2015, FLAG sales accounted for 67% of revenue, the FRAG segment made up 29%, and Corporate and Other comprised 4%. For perspective on scale, 2015 total revenue was $829mm while EBITDA was $106mm (13% margin). 

Oregon Tool operates a multi-channel sales model, selling through an aftermarket parts network consisting of both an online direct-to-consumer and retail channel, as well as selling directly into OEMs, primarily major chainsaw brands and outdoor power manufacturers. 

While Oregon Tool didn’t disclose its largest OEM customers, you can think of companies like STIHL, Husqvarna, and DeWalt (chainsaw manufacturers) as potential OEMs. These OEM relationships typically involve long-term supply agreements. These contracts provide more predictable volume, but at slightly lower margins. For a company like Oregon Tool with cyclical end markets, OEM relationships serve as a critical buffer to cyclical downturns. 

The replacement market, on the other hand, tends to be higher-margin due to the absence of bulk pricing and a stronger brand-name pull at the retail and direct-to-consumer levels. However, this segment also fluctuates heavily with end-market demand, particularly among commodity-facing end markets, as we’ll detail shortly. 

For a supplier like Oregon Tool, a balanced multichannel model is important. While the company rarely provides details on the prevalence of either sales channel, it did disclose in its 2015 10-K that 75% of FLAG segment sales were to the replacement market, while the remainder was to OEMs. 

Oregon Tool’s modern history has been shaped by a series of private equity transactions. Before that (pre-2016), the company operated for decades as Blount International, under the ticker BLT. As the company grew in size, it sought to extend its geographic footprint and product offerings through acquisitions. The company’s largest disclosed acquisition was the 2011 purchase of Woods Equipment for $185mm [4].  

In December 2015, Blount International was taken private by American Securities and P2 Capital Partners. The deal was valued at ~$855mm TEV or $10 per share [3]. This represents a purchase multiple of 8.5x the company’s 2015 adjusted EBITDA of $101mm. In June 2021, Blount International officially rebranded as Oregon Tool. 

A month later, in July 2021, American and P2 sold the company to Platinum Equity, its current owner. This deal was valued at $1.57bn TEV on LTM EBITDA of $172mm, representing a 9.1x multiple. Platinum funded the deal with an $850mm TLB and $300mm of senior unsecured notes, representing a fairly aggressive LTV of 73% and 6.7x EBITDA. As we detail in the table below, this implies an equity check of $420mm. 

Platinum is a Los Angeles-based private equity firm managing over $50bn. The firm is no stranger to distressed portfolio companies, with Incora, United Site Services, Cision, and Cabinetworks among the most notable examples [7]. As of December 2024, eight of its 57 portfolio companies’ debt was trading below 85 cents on the dollar. Across its portfolio, Platinum has engaged in multiple high-profile LMEs [14]. 

Liquidity Headwinds

Rising Interest Rates:

Like many other 2021 LBOs, Platinum Equity acquired Oregon Tool using inexpensive, floating-rate debt, as SOFR hovered near zero at the time. The company’s $838mm TLB was priced at SOFR + 4.00%, which in 2021 equated to an effective rate of 4%, and an interest expense of ~$34mm on the TLB. When also accounting for the $300mm of Oregon Tool’s Senior Notes, which carried a rate of 7.875%, total interest expense was ~$58mm. 

As SOFR increased to ~4.25% by Q1 2025, the company’s interest burden increased materially. At SOFR of 4.25% (8.25% effective rate), TLB interest expense was $69mm alone, bringing total interest expense to $93mm between the TLB and Senior Notes, a $35mm increase from 2021 levels, a figure that we will learn is not sustainable. 

End Market Headwinds:

Oregon Tool’s customer base, which includes agriculture and forestry, is highly exposed to the economic health of its respective end markets. This makes the company’s revenue stream especially vulnerable to cyclical downturns. When commodity prices or end market demand drop, farmers and loggers tend to defer new purchases and extend replacement cycles. For companies like Oregon Tool, which sell both replacement parts and to OEMs, downturns can affect the entire revenue stream.

Since Oregon Tool is a private company, specific details on revenue headwinds aren’t publicly available. However, we can use two metrics as a proxy for much of Oregon Tool’s end market demand: corn prices and housing starts. 

The figure above depicts corn prices since 2021. In mid-2021, when Platinum bought Oregon Tool, corn prices were on the rise, and farmers were using their extra cash to buy new equipment. For Oregon Tool, this likely meant an increase in both OEM first-fit sales (as farmers bought new tractors and attachments) and aftermarket replacement demand (as farmers looked to replace components). However, following an early 2022 peak, corn prices, among other commodities, began to fall, shrinking margins for many growers, resulting in deferred equipment upgrades and part replacements. 

A very similar pattern emerges in construction and forestry. Housing starts, which have trended downward since a 2022 peak, serve as a useful indicator of demand in both the forestry and construction end markets. Just as lower corn prices put pressure on farmers, declining housing activity suppresses lumber prices and discourages contractors from investing in new equipment or cutting systems. 

The above factors, combined with an aggressive post-LBO leverage profile, resulted in a series of ratings downgrades for Oregon Tool, originally rated at B2 by Moody’s [13]. For example, in February of 2023, Moody’s downgraded the company, citing “expectations for volume declines in the Forestry, Lawn, and Garden segment,” consistent with our macro analysis above [13]. Over the next 18 months, Oregon Tool’s profitability would continue to erode. In August 2024, Moody’s further downgraded the company to Caa3, saying, “Steep and persistent volume declines have materially eroded Oregon Tool's scale and profitability. Without a significant improvement in performance, the company will maintain leverage well above 10x and deplete its liquidity within the next 12 months" [12].

While specific information on Oregon Tool’s liquidity is scarce, analysts estimated the company’s liquidity as of March 2024 at $103mm, comprising $38mm of cash and $65mm undrawn on its $150mm revolver [8]. Additionally, LTM EBITDA was estimated at $110mm, which is consistent with Moody’s reported leverage of over 10x, given $1.14bn of total debt. Notably, this represents nearly a 40% decline from the $176mm reported as of the Platinum buyout. This allows us to paint a picture of Oregon Tool’s cash burn. Above, we estimated the company’s annual interest expense to be $93mm, which already accounts for 85% of estimated EBITDA. It was also reported that Oregon Tool would run out of liquidity “within 12 months” of its August 2024 downgrade [12]. Assuming another 12 months of runway from the August downgrade, and $40mm of cash in March 2024, we can estimate a monthly cash burn rate of roughly $2.5mm ($40mm / (5 + 12 months)). At this rate, Oregon Tool would likely run out of cash by Q3 2025. Annualized, this represents $30mm of cash burn, which is inferable considering $110mm of March 2024 EBITDA (which had likely further declined since then), $93mm of interest, and modest capital expenditures and working capital needs. The table below details these financials; take note of the substantial increase in interest as a % of EBITDA, from 34% to 85%. 

Review of Key Transaction Mechanics

Before we dive into Oregon Tool’s unprecedented transaction, it’s important to briefly review some of the important mechanics at play. We’ll quickly cover uptier transactions, double dip transactions, and the recent 5th Circuit ruling on the 2020 Serta Simmons transaction. 

Double Dip Structure:

Double-dip transactions have emerged as one of the more creative tools within liability management. In essence, a double dip allows new money lenders to obtain two bites at the collateral apple from a single dollar of funding. Rather than lending directly to the existing borrower, lenders first advance funds to a newly created non-guarantor subsidiary. Through a chain of intercompany loans and guarantees, that advance is pushed back up into the parent entity while the parent simultaneously guarantees the original loan. The effect is that the new lenders hold both a direct claim against the subsidiary and a parallel claim against the parent, effectively creating two secured claims from one transaction. For sponsors and borrowers, the structure sweetens economics for supportive creditors without invoking the open-market purchase mechanics that were heavily litigated in the Serta case. The steps below, along with the corresponding illustrative transaction, outline a basic double dip structure:

1. An entity lends money to an empty box (the non-guarantor sub).

2. This box then transfers that money (in the form of an intercompany loan) to another box (the restricted sub or ParentCo) with pre-existing debt/assets. 

3. The ParentCo then guarantees the initial loan (pari passu to pre-existing debt), creating a second secured claim for the double-dip creditor. 

Uptier Structure:

An uptier transaction involves amending an existing credit agreement (with majority-lender consent) to allow the borrower to issue new priming debt that sits above the old debt, often referred to as a “super senior” tranche. Participating lenders fund that new money, and are also invited to exchange their existing debt (at a discount or dollar for dollar) for a second-out tranche of priming debt. In an uptier, non-participating lenders are left subordinated to these new tranches, thus receiving a worse recovery in a bankruptcy scenario. The figure below visually depicts this type of transaction: 

Extend-and-Exchange Overview

In December 2024, as Oregon Tool’s liquidity profile continued to deteriorate, the company retained PJT Partners and Milbank as financial and legal advisors, respectively. Around the same time, an ad hoc group of term loan lenders hired Perella Weinberg and Davis Polk. Even though Oregon Tool wasn’t facing a debt maturity until 2028, it was clear that the company would need to raise new capital to weather its macroeconomic headwinds, or risk a Chapter 11 filing due to simply running out of cash. 

Although, given Oregon Tool’s liquidity situation, raising new money is much easier said than done. Lenders take on enormous risks when providing rescue financing, and almost always require enhanced protections. This fact is what has driven the rapid rise of liability management exercises over the past several years. It’s also what has made the uptier structure a go-to method for cash-burning companies looking to raise new money. As we detailed above, a traditional uptier allows participating lenders to fund new superpriority debt while also enhancing their current holdings, providing the necessary protections to entice fresh capital. This comes at the expense of non-participating lenders, who are left subordinated (or simply receive worse exchange economics). 

Given the popularity of uptiers among sponsors and lenders, they have been heavily litigated in recent years, with the most notable example being Serta Simmons’ June 2020 uptier. Before we continue, note that we’ve discussed both Serta and the coming Extend-and-Exchange methodology extensively in our Better Health writeup. This piece will provide a recap, but if you have yet to read Better Health, it is strongly recommended. 

To quickly recap, Serta raised $200mm of new money via a non-pro rata uptier. Participating lenders (Eaton Vance, Invesco, etc.) exchanged $1.2bn into an $875mm second-out tranche, while providing $200mm of new money for a first-out tranche. While a third tranche was created, it was never used. Non-participating lenders were left with just over $1bn of now-subordinated debt.

To effectuate this transaction, Serta relied on an exception to the pro-rata sharing provision of its credit agreement, specifically allowing for non-pro-rata purchase of debt via an open market purchase (OMP). As a reminder, pro-rata sharing means that all recoveries/payments should be made equal to all lenders in a class of debt. However, Serta relied on the ambiguity of the open market purchase definition to push through its uptier. 

For the following several years, distressed companies used the same OMP exception to effectuate uptier transactions. However, on December 31, 2024, the 5th Circuit Court of Appeals derailed this methodology by ruling against Serta’s use of the OMP exception in its uptier. Specifically, the court ruled that while Serta’s transaction could be considered “open” in a general sense, an “open market” purchase must occur in a recognized secondary loan trading market, not through a private deal with select creditors. Therefore, Serta’s 2020 exchange violated the pro-rata sharing provision under its original credit agreement. 

The effects of this ruling rippled through the liability management ecosystem, including current uptiers. If a distressed borrower were to pursue an uptier similar to Serta’s, they would almost certainly lose in the ensuing litigation. Better Health, for example, had already gathered ad hoc creditor support and was ready to close on an uptier transaction when the OMP exception was invalidated. Better Health and its sponsor, Kinderhook Industries, were forced to find a workaround that preserved the economics and incentives for participating creditors, without relying on the OMP exception. 

This workaround, first implemented by Better Health and later adopted by Oregon Tool in the transaction we are about to cover, is known as an extend-and-exchange. An extend-and-exchange bypasses the pro-rata sharing provision by eliminating its use altogether. It can be summarized in three steps.

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