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Thread: BIG NEWS! MAG Group Files For Bankruptcy

  1. #1
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    Default BIG NEWS! MAG Group Files For Bankruptcy

    Coppell, Texas-

    Industry Giant, the Motorcycle Aftermarket Group (MAG) is not a name that motorcycle enthusiasts are usually familiar with, but the family of brands that the company owns certainly is: Kuryakyn, J&P Cycles, Vance & Hines, Tucker Rocky, Biker's Choice, Progressive Suspension, Burly, Motorcycle Superstore, Performance Machine, Roland Sands Design, Renthal handlebars, Mustang Seats, Motorcycle USA, etc.

    The network of brands has been struggling over the recent years though, and today we learn that many of them will be filing for Chapter 11 bankruptcy, while the overarching MAG Group business restructures its debt and finds new ownership.

    While this is not the sexiest news story to happen in the motorcycle industry this year, it is certainly one of the most important and complicated. As such, we will try to break it down in a digestible way for you.

    Debt and the New Owners of MAG

    The first thing to understand is that MAG itself as company has acquired a massive amount of debt, approximately $440 million, and through the process that we are about to explain, MAG hopes to eliminate close to $300 million of debt off its books.

    Editor’s note: while it is known colloquially as MAG or the MAG Group, Velocity Holding Company is in fact the parent company for this house of brands and the Tucker Rocky distribution business.

    MAG is eliminating $300 million of its debt burden by what is called a debt-for-equity swap. This basically means that the lenders that MAG owes money to will take an equity position in MAG. This also means that they are getting stock in MAG, and are paying for this equity with the money that MAG owes them.

    However, the amount of money that MAG owes is substantial, and it means that so much equity in MAG must be exchanged in order to pay off the loans that these lenders are effectively becoming the new business owners of MAG.

    As such, these new owners are Monomoy Capital Partners, BlueMountain Capital, and Contrarian Partners, and they will lead the new owners group for MAG and its house of brands – implementing their own new Board of Directors for MAG, which will surely appoint new leadership to MAG and its holdings.

    By eliminating $300 million in debt through this equity swap, MAG will be able to rapidly “de-lever” its balance sheet, “leverage” being an industry term to describe how much debt a company is using to fund its operations. The more leveraged a company is, the higher its debt-to-equity ratio.

    Chapter 11 for Brands

    To restructure the debt, many of MAGs holdings are filing for relief under Chapter 11, Title 11 of the US Code – better known as Chapter 11 bankruptcy.

    The companies filing for Chapter 11 are the following: Renthal Americas, Tucker Rocky, Biker's Choice, Performance Machine (which includes Roland Sands Design), Vance & Hines, J&P Cycles, Velocity Holdings Company, Velocity Pooling Vehicle, DFR Acquisition, Ed Tucker Distributor, Kuryakyn, MAG Creative Group, MAGNET Force, Motorcycle Superstore, Motorcycle USA, Motorcycle Aftermarket Group, Mustang Motorcycle Products, Ralco Holdings, and Rally Holdings.

    By having these companies file for protection under Chapter 11, the new owners of MAG will be able to more rapidly turnaround the company’s overall business, and return to profitability.

    It should be noted that of these brands were co-borrowers and/or guarantors to MAG’s overall debt, with the sole exception of Tucker-Rocky Georgia, LLC, which helps explain why both the parent company (MAG/Velocity) and its child companies (Renthal, Tucker Rocky, etc) are going through a Chapter 11 debt restructuring.

    How This Debt Came To Be

    MAG’s debt obligations total roughly $440 million, and come from a variety of sources: $65.5 million is from an asset-back loan; $290 million is from what’s called a first-lien term loan; while $85 million is from a second-lien term loan. All of these loans were entered into on May 14, 2014.

    Since that time, MAG’s business has contracted by 20% – a decline of sales to the tune of almost $175 million. As a result of this sales decline, MAG’s earnings (EBITDA) have dropped from $46 million in 2014, to an estimated $20 million for 2017.

    By eliminating a substantial portion of the company’s debt, MAG can expect to see a significant increase in its yearly earnings – an increase of over $10 million by our estimations.

    In the Transition

    In order to finance these companies through their bankruptcy proceedings, MAG has negotiated $135 million in what is called debtor-in-possession (DIP) financing.

    DIP financing is money lent to a company pre-bankruptcy, and is typically used to continue normal business operations while the bankruptcy works its way through the legal system.

    It should be noted that usually DIP loans like this are given with very strict provisions on how the money can be used. It is important to note too that DIP financing is debt that is senior to any other debt, that is to say, it must be paid back first during any refinancing or bankruptcy arrangement.

    Coming Out the Other Side

    MAG insists that it will be business as usual for the company’s employees, customers, and vendors. For the most part, that seems to be true. Undoubtedly, MAG’s new owners will change the company’s business focus and operations, in order to ensure profitability post-bankruptcy.

    On a more macro scale however, MAG’s financial difficulties should be seen as a bellwether on the state of the American motorcycle industry. With only a handful of weeks left in the calendar year, we can surely expect to hear Q4 and annual reports that show motorcycle sales in decline.

    Asphalt & Rubber is predicting an industry contraction of roughly 7% for 2017 in the USA, which is noticeable after the relatively flat past years of 2015 and 2016.

    With sales down, companies struggling, and the motorcycle media landscape completely up for grabs (two titles of which were under MAG ownership), the curse “may you live in interesting times” certainly seems to apply.

    Obviously this is an evolving situation in the US motorcycle industry. We will file additional reports as more information becomes available.

    Creditors

    The company and its affiliates filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. Involved are Velocity Holding Co., Velocity Pooling Vehicle LLC, DFR Acquisition Corp., Ed Tucker Distributor Inc., J&P Cycles LLC, Kuryakyn Holdings LLC, MAG Creative Group LLC, Magnet Force LLC, Motorcycle Superstore Inc., Motorcycle USA LLC, Motorsport Aftermarket Group Inc., Mustang Motorcycle Products LLC, Performance Machine LLC, Ralco Holdings Inc., Rally Holdings LLC, Renthal America Inc., Tucker Rocky Corp., Tucker-Rocky Georgia LLC, and V&H Performance LLC.

    The filing lists more than 14,000 creditors, including Dealers, manufacturers, service providers and individuals. The largest creditors listed are Sumitomo ($3.48 million), Pirelli Tire ($2.3 million), Arai ($1.55 million), Anthem Blue Cross ($1.4 million), Bridgestone/Firestone ($1.28 million), American Kenda ($1.1 million), Avon Tyres ($1.03 million), Cobra Engineering ($984,220), Cardo Systems ($684,097), Yuasa-Exide ($567,843), KFI/Kappers ($547,605), Ogio ($546,359), Guangdong Dynavolt ($523,739), Power Sport Industries/All Balls Racing ($440,904), Camso Inc. ($431,093), Cheng Shin Rubber USA ($425,781), Warn Industries ($423,629), Continental Tire ($404,385), FMF Racing ($376,239), EBC Brakes ($356,933), First Insurance Funding Corp. ($351,654), Bluegrade Logistics ($336,948), Yoshimura R&D of America ($301,142), Shorai ($293,937), Inoue Rubber Co. Ltd. ($291,515), Vialink/Seizmik ($266,447), Google ($250,000), Vista Outdoor ($245,498), Maxima Products ($237,213) and United Parcel Service ($225,000).

    source: asphaltandrubber.com

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    That's big, albeit depressing news!

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    Saw this a few days ago.It will be very interesting to see how things turn out.Folks may be making their own accessories till new companies come along if a few of them end up shutting down.
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    Sounds like new faces in the board meetings and new vehicles in the parking spaces close the door. interesting long term will it really affect us? Fred
    Vintage 09' Vivid Black, Boyesen X force intake, DK Customs DIY external breather, PV tuner, Mighty Mite love Jugs,Titanium Wrapped Header pipe, Khrome Werks 2+2 Wide Sweepers, DK 2" tank lift deluxe, Air Deflectors, Rear Bumper, Fender Chrome trim, Kuri. Rear lights, 9" LRS recurve flat top wind screen, LED headlight and spots, Hubcaps rear wheels

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    Not a good sign for the whole industry IMO

    Guess parts and accessories are going up to pay off some of this debt?

    Bet HD will continue to raise their prices thinking they still have a lock on bikes and parts

    Thanks for an interesting read
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    Default Big News! MAG GroupFiles For Bankruptcy

    I agree with Jack, it doesn't look good for the motorcycle industry as a whole.

    You have 14,000 creditors who will receive pennies on the dollar. The cost of doing business which will be passed onto the consumer.
    Larry Sobczak
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    Gota step out of the box a little, it will also affect the real estate end as of vacant ware houses.
    2012 Triglide Piaggio MP3 500 to get groceries 1991 FLHS as back up
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    Yes, this will be interesting to see how this plays out. This will touch all corners of the business.
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    I am sure it will get nasty for a while. I was visiting my friend yesterday at the HD store, he just got back from a long vacation. He said that oct was the worst month of the dealership and that nov would probably not be much better. Service dept is doing ok, but sales are not happening.
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    There is definitely going to be a ripple effect throughout the industry.

    Here are a couple more numbers that show how bad MAG messed up.

    Chapter 11 filings give fairly large ranges of debt declaration once you get beyond the million dollar range, and there are several of MAGs holdings filing in the $100 million to $500 million range.

    However, taking the smallest amounts possible into account, the MAG companies are filing for a combined amount in excess of $872,650,000. This means that real figure is likely above the $1 billion mark.


    We do not sell to any MAG companies for this very reason. We have been approached multiple times over the years. But they always wanted us to extend them 30-90 day terms. While it is tempting to increase sales by doing this (look at all the companies that do), not doing so protects against this very thing.

    Depending on how they handle it, there may be little direct/felt impact to bike owners. However, many suppliers will either go out of business, and/or be hesitant to sell to these companies, resulting in less availability of parts.

    Kevin
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    Although mom and pop businesses will not allow ya to own your own island, it sertinaly gives ya a warm fuzzy feeling of be independent in doing what you enjoy. If one. Needs to depend on others, then it’s time to get out. Just my opinion and I’m sticking to it Keep up the good work your doing Kevin,and ENJOY yourself in the working world
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    Quote Originally Posted by DK Custom Products View Post
    There is definitely going to be a ripple effect throughout the industry.

    Here are a couple more numbers that show how bad MAG messed up.

    Chapter 11 filings give fairly large ranges of debt declaration once you get beyond the million dollar range, and there are several of MAGs holdings filing in the $100 million to $500 million range.

    However, taking the smallest amounts possible into account, the MAG companies are filing for a combined amount in excess of $872,650,000. This means that real figure is likely above the $1 billion mark.


    We do not sell to any MAG companies for this very reason. We have been approached multiple times over the years. But they always wanted us to extend them 30-90 day terms. While it is tempting to increase sales by doing this (look at all the companies that do), not doing so protects against this very thing.

    Depending on how they handle it, there may be little direct/felt impact to bike owners. However, many suppliers will either go out of business, and/or be hesitant to sell to these companies, resulting in less availability of parts.

    Kevin
    That was a smart decision Kevin. This has been building for a while now, it didnt happen overnight and it is having a direct effect on many large and small companies and has even trickled down to the motorcycle forums too, including ours.

    Five of our vendors who have distribution deals with one or more MAG companies are no longer vendors here. If they dont get paid, they can no longer afford to pay for their advertising, not good for them, us or our members. We stretched out with some of them but wound up writing off what is for us, a substantial sum and it hurts. This is why forums have started filling up their sites with ad links and offering upgraded paid memberships to help keep them alive.

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    Quote Originally Posted by Papa Zook View Post
    That was a smart decision Kevin. This has been building for a while now, it didnt happen overnight and it is having a direct effect on many large and small companies and has even trickled down to the motorcycle forums too, including ours. Five of our vendors who have distribution deals with one or more MAG companies are no longer vendors here. If they dont get paid, they can no longer afford to pay for their advertising, not good for them, us or our members. We stretched out with some of them but wound up writing off what is for us, a substantial sum and it hurts. This is why forums have started filling up their sites with ad links and offering upgraded paid memberships to help keep them alive.
    So when are we going to get a life membership option ? I'm in when it happens. Oh yeah, I wear a size XL for my Trike Talk.com t-shirt ...........
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    Quote Originally Posted by 1dn5up View Post
    Although mom and pop businesses will not allow ya to own your own island, it sertinaly gives ya a warm fuzzy feeling of be independent in doing what you enjoy. If one. Needs to depend on others, then it’s time to get out. Just my opinion and I’m sticking to it Keep up the good work your doing Kevin,and ENJOY yourself in the working world
    Thank you! I enjoy it most of the time, and am grateful everyday to be able to work in this industry!

    Quote Originally Posted by Papa Zook View Post
    That was a smart decision Kevin. This has been building for a while now, it didnt happen overnight and it is having a direct effect on many large and small companies and has even trickled down to the motorcycle forums too, including ours.

    Five of our vendors who have distribution deals with one or more MAG companies are no longer vendors here. If they dont get paid, they can no longer afford to pay for their advertising, not good for them, us or our members. We stretched out with some of them but wound up writing off what is for us, a substantial sum and it hurts. This is why forums have started filling up their sites with ad links and offering upgraded paid memberships to help keep them alive.
    I hear you Randy! I've been watching Tucker Rocky/MAG for the last few years and watching all the companies they've been acquiring. Never felt good about it...now we know why.

    Since we do business with them weekly (as a Customer), it will be interesting to see if anything changes from our perspective.

    It really is sad to see some innovative companies being waylaid by this...but actions have consequences in the real world, as they are seeing.

    Hope to see some companies emerge from this stronger, and decide to be Sponsors on this great forum!

    Kevin
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    The companies filing for Chapter 11 are the following:

    Renthal Americas

    Tucker Rocky

    Performance Machines (which includes Roland Sands Design)

    Vance & Hines

    J&P Cycles

    Velocity Holdings Company

    Velocity Pooling Vehicle

    DFR Acquisition

    Ed Tucker Distributor

    Kuryakyn

    MAG Creative Group

    MAGNET Force

    Motorcycle Superstore

    Motorcycle USA

    Motorcycle Aftermarket Group

    Mustang Motorcycle Products

    Ralco Holdings

    Rally Holdings

    .

    .

    Kevin
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    That is quite a list Kevin

    I am wondering if now would be a good time to buy a bunch of bolts nuts and hardware frome Tucker? HMMMMMM

    Surprised to not see Colony mixed up with these guys
    Nuff Said," Were Burnin Daylight, Lets Ride"(Sober 37 years)
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    Interesting to see that Mustang Seats isn't in the mix. Since Al Simmons sold the company to them, I haven't bought a Mustang Seat. Imho, the quality just isn't there anymore.
    2021 Mustang GT Premium A10 Handling Pkg
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    Quote Originally Posted by MikeyTX View Post
    Interesting to see that Mustang Seats isn't in the mix. Since Al Simmons sold the company to them, I haven't bought a Mustang Seat. Imho, the quality just isn't there anymore.
    Look at the list again...it's there, third from the bottom.

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    One former sponsor I spoke with a few days ago who is deep with a huge MAG company would only say that "they are working on cleaning up their account". That is saying a lot without saying a lot. Everyone I have spoken to in the industry is trying to be optomistic and are being told from their MAG reps that "everything is fine, this doesn't effect us." There sure are a lot of phone calls amongst one another looking for encouragement. One cannot help but to be nervous. Im theorizing that if you are a really big company or a really small company, as a creditor, you might be screwed. A billion dollar nut will be hard to crack.

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    Quote Originally Posted by Jack Klarich View Post
    That is quite a list Kevin

    I am wondering if now would be a good time to buy a bunch of bolts nuts and hardware frome Tucker? HMMMMMM

    Surprised to not see Colony mixed up with these guys
    Lots better places to buy fasteners from than them...have not seen any change in their pricing in the last couple of weeks.

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