Cannondale to file Ch 11

Discussion in 'Cycling Equipment' started by Thunderdomeshar, Jan 27, 2003.

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  1. From cyclingnews.com

    Cannondale to file for bankruptcy

    The Cannondale Corporation has announced that it will file for bankruptcy on January 28 under
    Chapter 11 of the U.S. Bankruptcy Code. The bicycle and motorsports company issued a press release
    stating that "Cannondale and its lenders, The CIT/Business Credit, Inc. and Pegasus Partners II,
    L.P. have reached an agreement in principle that, subject to Bankruptcy Court approval, will provide
    the Company with interim financing to fund post-petition operating expenses and to meet supplier and
    employee commitments."

    "The interim financing will be used to continue the operation of our bicycle business," said
    Cannondale Founder and President Joe Montgomery.

    "Cannondale has also reached an agreement in principle with Pegasus Partners II, L.P. to sell
    substantially all of its assets to Pegasus Partners, subject to better and higher offers and court
    approval. Pegasus would operate the bicycle business with the involvement of current management and
    would purchase separately the Company's motorsports assets, including the intellectual property
    related to the design of Cannondale's motorsports products."

    Cannondale stated that due to the interim financing, it will "be able to pay vendors for goods and
    services received after the filing in the ordinary course of business."

    The main reason for the company filing for bankruptcy was due to the losses incurred by its
    motorsports division. Although the bicycle business was still profitable, the company's huge
    investment into motorcycles, combined with its lack of success competing against the established
    Japanese giants was too much.

    "Although we believe in the value of our motorsports products, we did not have sufficient financial
    resources to make the additional investments necessary," said Montgomery. "We look forward to
    bringing a renewed focus to our core bicycle business and to working through this present challenge
    with the greatest possible speed."

    It's expected that while production workers who were laid off from Cannondale's motorsports factory
    in Bedford, Pennsylvania in December will not be recalled, production workers at Cannondale's
    Bedford bicycle factory, were temporarily suspended from work, are scheduled to return to work in
    the near future.

    The company's foreign subsidiaries will not be included in the filing. Business done through
    Cannondale subsidiaries in Europe, Japan and Australia accounted for approximately 42% of the
    company's total sales in the 2002 fiscal year.
     
    Tags:


  2. Who knows more about Pegasus Partners II L.P?

    from http://www.business-journal.com/LateApril02/RepublicTechsale.html "Pegasus Partners II L.P. is
    managed by Pegasus Capital Advisors L.P., a Greenwich, Conn.-based private equity investment firm
    that manages approximately $800 million of capital. To date, Pegasus has invested in 26 companies in
    a broad array of industries."

    http://www.internetnews.com/IAR/article.php/732421 http://www.atnewyork.com/news/article.php/765901

    But not much by google really. Hmmm... I don't know about their investing strategy. Basically
    Pegasus is owed money and Cannondale looks to done. I anticipate Pegasus in effect simply looks for
    a buyer and we'll see how much of "Cannondale" really comes out the other side of this. The
    motorcycle IP and any of its assets will get shed for pennies on the dollar. I wouldn't bet on that
    "involvement of current management" lasting too long.

    Thunderdomeshark wrote:
    >
    > From cyclingnews.com
    >
    > Cannondale to file for bankruptcy
    >
    > The Cannondale Corporation has announced that it will file for bankruptcy on January 28 under
    > Chapter 11 of the U.S. Bankruptcy Code. The bicycle and motorsports company issued a press release
    > stating that "Cannondale and its lenders, The CIT/Business Credit, Inc. and Pegasus Partners II,
    > L.P. have reached an agreement in principle that, subject to Bankruptcy Court approval, will
    > provide the Company with interim financing to fund post-petition operating expenses and to meet
    > supplier and employee commitments."
    >
    > "The interim financing will be used to continue the operation of our bicycle business," said
    > Cannondale Founder and President Joe Montgomery.
    >
    > "Cannondale has also reached an agreement in principle with Pegasus Partners II, L.P. to sell
    > substantially all of its assets to Pegasus Partners, subject to better and higher offers and court
    > approval. Pegasus would operate the bicycle business with the involvement of current management
    > and would purchase separately the Company's motorsports assets, including the intellectual
    > property related to the design of Cannondale's motorsports products."
    >
    > Cannondale stated that due to the interim financing, it will "be able to pay vendors for goods and
    > services received after the filing in the ordinary course of business."
    >
    > The main reason for the company filing for bankruptcy was due to the losses incurred by its
    > motorsports division. Although the bicycle business was still profitable, the company's huge
    > investment into motorcycles, combined with its lack of success competing against the established
    > Japanese giants was too much.
    >
    > "Although we believe in the value of our motorsports products, we did not have sufficient
    > financial resources to make the additional investments necessary," said Montgomery. "We look
    > forward to bringing a renewed focus to our core bicycle business and to working through this
    > present challenge with the greatest possible speed."
    >
    > It's expected that while production workers who were laid off from Cannondale's motorsports
    > factory in Bedford, Pennsylvania in December will not be recalled, production workers at
    > Cannondale's Bedford bicycle factory, were temporarily suspended from work, are scheduled to
    > return to work in the near future.
    >
    > The company's foreign subsidiaries will not be included in the filing. Business done through
    > Cannondale subsidiaries in Europe, Japan and Australia accounted for approximately 42% of the
    > company's total sales in the 2002 fiscal year.
     
  3. John Dacey

    John Dacey Guest

    On Mon, 27 Jan 2003 18:22:52 -0800, The Pomeranian <[email protected]> wrote:

    >Who knows more about Pegasus Partners II L.P?
    <snip>
    >
    >But not much by google really. Hmmm... I don't know about their investing strategy.

    They practiced the only sure-fire way of making money in the bicycle industry: buy stock in bike
    companies and sell short. Since the value of these companies stocks is in a neverending downward
    spiral toward bankruptcy (Schwinn, GT, Derby/Raleigh et al), shorting bike stocks is the closest
    thing to a sure bet you could hope to find unless you're Martha Stewart's greengrocer.

    -------------------------------
    http://www.businesscycles.com John Dacey Business Cycles, Miami, Florida Now in our twentieth year.
    Our catalog of track equipment: seventh year online
    -------------------------------
     
  4. Tom D

    Tom D Guest

    The Pomeranian <[email protected]> wrote in message
    news:<[email protected]>...
    > Who knows more about Pegasus Partners II L.P?
    >
    > from http://www.business-journal.com/LateApril02/RepublicTechsale.html "Pegasus Partners II L.P.
    > is managed by Pegasus Capital Advisors L.P., a Greenwich, Conn.-based private equity investment
    > firm that manages approximately $800 million of capital. To date, Pegasus has invested in 26
    > companies in a broad array of industries."
    >
    > http://www.internetnews.com/IAR/article.php/732421
    > http://www.atnewyork.com/news/article.php/765901
    >
    > But not much by google really. Hmmm... I don't know about their investing strategy. Basically
    > Pegasus is owed money and Cannondale looks to done.

    There's *some* info available via Google. The Yahoo! regional directory lists Pegasus as a "private
    equity investment firm focusing on restructurings, bankruptcies, buyouts, and distressed
    investments." The fund's website (mostly accessible only via password) also mentions venture
    capital, but the 3 recent transactions found via Google (a steel company and 2 web companies) were
    all troubled/bankruptcy situations, and I suspect the VC part is small.

    It's interesting that a "vulture fund" was Cannondale's biggest creditor. This, to me, implies that
    Pegasus purchased already-nonperforming bank debt at a steep discount to face value, with the intent
    of converting to equity upon Chapter 11 filing. [Come to think of it, Pegasus's presence should have
    been a tip-off to the dopey BIKE stockholders that their holdings would soon become worthless!]

    Considering the vulture fund takeover, I figure that Pegasus will shut down the motorsports
    division, selling it if possible, and operate the bicycle arm for a while. They'll sell the
    (hopefully profitable) bike division as soon as they can get an attractive price for it. I think
    this strategy has a good chance of success: the press release mentioned that the bike biz is
    profitable, and earlier stories put annual bike division sales over $120MM/yr. The statement that
    "overseas operations will be unaffected" is interesting and potentially a good sign (there's
    anecdotal evidence that Cannondale bikes do well in Europe).
     
  5. Tom D wrote:

    > The statement that "overseas operations will be unaffected" is interesting and potentially a good
    > sign (there's anecdotal evidence that Cannondale bikes do well in Europe).

    Cannondale Europe doesn't build frames in Oldenzaal. When stocks of frames run out they might have
    problems. /Marten
     
  6. Tom D wrote:
    >
    > The Pomeranian <[email protected]> wrote in message
    > news:<[email protected]eakennel.com>...
    > > Who knows more about Pegasus Partners II L.P?
    > >
    > > from http://www.business-journal.com/LateApril02/RepublicTechsale.html "Pegasus Partners II L.P.
    > > is managed by Pegasus Capital Advisors L.P., a Greenwich, Conn.-based private equity investment
    > > firm that manages approximately $800 million of capital. To date, Pegasus has invested in 26
    > > companies in a broad array of industries."
    > >
    > > http://www.internetnews.com/IAR/article.php/732421
    > > http://www.atnewyork.com/news/article.php/765901
    > >
    > > But not much by google really. Hmmm... I don't know about their investing strategy. Basically
    > > Pegasus is owed money and Cannondale looks to done.
    >
    > There's *some* info available via Google. The Yahoo! regional directory lists Pegasus as a
    > "private equity investment firm focusing on restructurings, bankruptcies, buyouts, and distressed
    > investments." The fund's website (mostly accessible only via password) also mentions venture
    > capital, but the 3 recent transactions found via Google (a steel company and 2 web companies) were
    > all troubled/bankruptcy situations, and I suspect the VC part is small.
    >
    > It's interesting that a "vulture fund" was Cannondale's biggest creditor. This, to me, implies
    > that Pegasus purchased already-nonperforming bank debt at a steep discount to face value, with the
    > intent of converting to equity upon Chapter 11 filing. [Come to think of it, Pegasus's presence
    > should have been a tip-off to the dopey BIKE stockholders that their holdings would soon become
    > worthless!]
    >
    > Considering the vulture fund takeover, I figure that Pegasus will shut down the motorsports
    > division, selling it if possible, and operate the bicycle arm for a while. They'll sell the
    > (hopefully profitable) bike division as soon as they can get an attractive price for it. I think
    > this strategy has a good chance of success: the press release mentioned that the bike biz is
    > profitable, and earlier stories put annual bike division sales over $120MM/yr. The statement that
    > "overseas operations will be unaffected" is interesting and potentially a good sign (there's
    > anecdotal evidence that Cannondale bikes do well in Europe).

    Interesting and informative perspective -- thanks!
     
  7. Peter

    Peter Guest

  8. Ian S

    Ian S Guest

    "John Dacey" <[email protected]> wrote in message
    news:[email protected]...
    >
    > They practiced the only sure-fire way of making money in the bicycle industry: buy stock in bike
    > companies and sell short.

    Actually, that's not quite right. You BORROW the stock then sell it. That's called "shorting" the
    stock. Assuming the stock declines, you buy it back at a lower price to pay back what you borrowed.
    The difference between what you sold it for and what you later bought it back for is your profit -
    or loss if the stock went up instead of down.
     
  9. May a successful bike biz rise from the ashes. It is a shame that Joe Montgomery was able to build
    such a successful bike business, but then blew it all with his foray into motorsports. This is one
    for the business school case studies. They could at least incorporated the motorsports arm as a
    different company from the bike company. Once again bad marketing projections override all whiz-bang
    technical advances.

    In their bike business, Cannondale did so many things right- they got their costs down, marketed
    well, sponsored well, expanded internationally, came out with innovative stuff (some truly so), and
    made a profit from the bike business consistently. With motorsports, they got ahold of a bad idea
    and wouldn’t let go of it.

    And their bikes ain’t bad- they are really strong and I never had a frame fail. I once had my
    Cannondale touring bike on my roof when I hit a concrete beam exiting a parking garage. The steel
    roof rack bent, with no damage but a scuff to my Brooks saddle. On my Cannondale criterium (an early
    one with a crooked top tube but aligned frame), I t-boned a bike that popped out from a hedge,
    bending a 950g Tange steel fork, with no damage to the frame. And in TOUR magazine test-to-failure
    frame tests in ‘99 or so, the only frames that simply wouldn’t crack were the Trek OCLV and
    Cannondale CAAD3. The other steel, aluminium, and CF bikes all cracked somewhere. Good luck to
    Cannondale! Rob ‘93 T1000, ‘98 KV900
     
  10. Get your facts straight. Cannondale's bike business has always been profitable. It was motorsports
    that killed them.

    Rob

    John Dacey wrote:

    >
    > They practiced the only sure-fire way of making money in the bicycle industry: buy stock in bike
    > companies and sell short. Since the value of these companies stocks is in a neverending downward
    > spiral toward bankruptcy (Schwinn, GT, Derby/Raleigh et al), shorting bike stocks is the closest
    > thing to a sure bet you could hope to find unless you're Martha Stewart's greengrocer.
    >
    > ---------------
     
  11. In article <[email protected]>, [email protected] says...

    > It's interesting that a "vulture fund" was Cannondale's biggest creditor. This, to me, implies
    > that Pegasus purchased already-nonperforming bank debt at a steep discount to face value, with the
    > intent of converting to equity upon Chapter 11 filing. [Come to think of it, Pegasus's presence
    > should have been a tip-off to the dopey BIKE stockholders that their holdings would soon become
    > worthless!]

    When in doubt, go to the SEC's EDGAR database:

    On July 26, 2002, Pegasus Partners and the Issuer entered into a Note Purchase Agreement (the "Note
    Purchase Agreement"), a copy of which is filed as Exhibit 1 hereto. Capitalized terms used herein
    but not otherwise defined herein have the meanings set forth in the Note Purchase Agreement.
    Pursuant to the Note Purchase Agreement, Pegasus Partners purchased $25 million aggregate principal
    amount of 20% Senior Secured Notes due July 25, 2007 of the Issuer. Interest on the Notes shall
    accrue at the rate of 7.5% per annum to be paid in cash and 12.5% per annum to be paid in additional
    Notes in a principal amount equal to the amount of such interest or, at the Issuer's option, in
    cash. In connection with the Note Purchase Agreement, Pegasus Partners and the Issuer entered into
    various ancillary agreements granting Pegasus Partners a security interest in substantially all of
    the assets of the Issuer.

    --
    [email protected] is Joshua Putnam <http://www.phred.org/~josh/> Updated Infrared Photography Books
    List: <http://www.phred.org/~josh/photo/irbooks.html
     
  12. Ajames54

    Ajames54 Guest

    On Wed, 29 Jan 2003 05:33:09 GMT, Robert Perkins <[email protected]> wrote:

    >Get your facts straight. Cannondale's bike business has always been profitable. It was motorsports
    >that killed them.
    >
    >Rob

    I thought they had some financial problems in the mid '90s as well... Some Rock star or his kid had
    something to do with it..

    Hell I don't remember ... but stories about their financial woes have been going around for a very
    long time...
     
  13. Jim Edgar

    Jim Edgar Guest

    ajames54 at [email protected] wrote on 1/29/03 5:50 AM:
    > Hell I don't remember ... but stories about their financial woes have been going around for a very
    > long time...
    >

    The best way to make a little money in the bike biz is to start out with a lot of money...

    ;^)

    -- Jim
     
  14. In article <[email protected]>, [email protected] says...
    >
    >
    >Get your facts straight. Cannondale's bike business has always been profitable. It was motorsports
    >that killed them.

    Too bad they didn't keep the two businesses separate. That way the bike business could have survived
    on it's own and not dragged down by the motorsports division.
    -----------------
    Alex __O _-\<,_ (_)/ (_)
     
  15. Gary Young

    Gary Young Guest

    This is what bankruptcydata.com had to say about Cannondale this morning:

    "Cannondale Files Chapter 11 Cannondale Corporation filed a voluntary petition for reorganization
    under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in the District of
    Connecticut. The Court approved the interim post-petition financing from the Company's lenders, The
    CIT Group/Business Credit, Inc. and Pegasus Partners II, L.P., that will be used to continue the
    operation of Cannondale's bicycle business. The Company can use the financing to pay vendors for
    goods and services received after the filing in the ordinary course of business. The Company's
    foreign subsidiaries are not included in the bankruptcy. Business done through Cannondale
    subsidiaries in Europe, Japan and Australia accounted for approximately 42% of the Company's total
    sales in fiscal 2002. Under the terms of an agreement still subject to court approval, Pegasus has
    agreed to act as the "stalking horse" in a Section 363 sale of substantially all of the Company's
    assets on a going concern basis. Zeisler & Zeisler, PC is acting as debtor's counsel and, subject to
    court approval, Alvarez & Marsal, Inc. is providing the Company's chief restructuring officer. Legg
    Mason Wood Walker, Incorporated has been retained as Cannondale's financial advisor and exclusive
    sales agent during the auction process."

    Can one of our finance experts explain what is meant by "Pegasus has agreed to act as the 'stalking
    horse' in a Section 363 sale of substantially all of the Company's assets on a going concern basis"?
     
  16. > Can one of our finance experts explain what is meant by "Pegasus has agreed to act as the
    > 'stalking horse' in a Section 363 sale of substantially all of the Company's assets on a going
    > concern basis"?

    It might mean they have the right to outbid any offer that comes in; essentially, a preferential
    treatment based upon their position in the company ($$$ invested).

    --Mike-- Chain Reaction Bicycles http://www.ChainReactionBicycles.com
     
  17. Tom D

    Tom D Guest

    [email protected] (Gary Young) wrote in message
    news:<[email protected]>...
    > Can one of our finance experts explain what is meant by "Pegasus has agreed to act as the
    > 'stalking horse' in a Section 363 sale of substantially all of the Company's assets on a going
    > concern basis"?

    http://www.investopedia.com/terms/s/stalkinghorsebid.asp

    >>Stalking Horse Bid: A strategy used by bankrupt companies where they
    obtain an initial bid on their assets from an interested buyer of their choosing.

    A stalking horse is a company chosen from a pool of bidding companies to perform the first bid on a
    bankrupt company. This method allows the distressed company to avoid low bids on their assets. Once
    the stalking horse bidder has made their bid, other potential buyers may submit competing bids for
    the company's assets. In essence the stalking horse sets the bar, so that other bidders can't
    "low-ball" the purchase price. <<
     
  18. Tom D

    Tom D Guest

    [email protected] (Gary Young) wrote in message
    news:<[email protected]>...
    > Can one of our finance experts explain what is meant by "Pegasus has agreed to act as the
    > 'stalking horse' in a Section 363 sale of substantially all of the Company's assets on a going
    > concern basis"?

    I don't know much about bankruptcy workouts, but Googled further in response to an e-mail inquiry.

    A stalking horse bidder has somewhat of an inside track due to familiarity and relationships with
    the company, but it's disadvantageous to spend time and money making an initial bid which gets
    shopped around. To compensate for this, the bidding process can be structured to compensate the
    stalking horse in various ways. It's pretty complicated, with lots of ethical issues and potential
    conflicts of interest. A couple of good references are:

    http://www.turnaround.org/print/articles.asp?objectID=1386

    http://www.turnaround.org/print/articles.asp?objectID=1279
     
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