Situation Overview

StoneMor Partners, LP (StoneMor or the Company) is a leading owner and operator of 322 cemeteries and 91 funeral homes in 27 states and Puerto Rico.

Carl Marks Advisors (CMA) was retained by StoneMor in September 2018 to assist in negotiating an amendment to a $175 million senior secured credit facility that was necessitated after several years of declining sales and an increasingly inefficient cost structure. New senior management had recently joined the Company and was focused on developing and implementing a turnaround plan to increase sales and lower costs. However, the Company needed to deal with pending potential defaults on its credit facility and limited liquidity to provide the time needed to implement improvements in the business.

CMA worked closely with management to develop the near-term liquidity forecasts and longer-run forecasts that were key inputs used in raising a $35 million liquidity bridge financing. These forecasts were also critical in negotiating the credit facility amendment to reset covenants and set milestones for refinancing of the credit facility.

As part of the amendment, CMA’s role was expanded to lead initiatives within StoneMor in several key areas, including liquidity tracking/forecasting, cost reduction identification/implementation and oversight of the refinancing process.

Unique Challenges

Prior discussions between the Company and the lenders had been unsuccessful and difficult at times, leading to a breakdown in communications and trust. The Company had failed to meet forecasted performance as part of prior amendments, contributing to divergent views as to the appropriate strategy to optimize their outcomes among the members of the lender group.

As a publicly traded MLP, the underperformance of the Company and the pending debt covenant defaults had negatively impacted the Company’s equity value, limiting the ability to raise capital through an equity issuance. Also there was a significant gap between the intrinsic value of the company’s assets and current profitability of the business.

As a large operator of cemeteries and funeral homes, the Company oversaw over $900 million of trust assets related to future delivery of services on pre-sold contracts and the perpetual care of cemetery properties. Understanding the cash flow potential of these assets is unique to companies in the death care industry.

Results

CMA helped the Company negotiate an amendment to its credit facility and raise bridge liquidity by developing a realistic plan and timetable for implementing both the Company’s turn-around plan and running a process to fully refinance out the existing senior secured lenders.

As discussions progressed with potential financing partners, the transaction evolved into a more beneficial solution that fully recapitalized the Company, including taking out the $175 million of subordinated notes with $385 million of senior secured PIK toggle notes and a $57.5 million convertible preferred equity investment. The new capital structure is expected to provide the financial flexibility and liquidity support to deliver on management’s turnaround plan.

Insights

  • Establishing creditability and trust among the parties with open, honest and frequent communications was a necessary prerequisite to advancing the situation.
  • Identifying the key issues for all constituent groups and incorporating those issues into the discussions was crucial to developing a consensual solution.
  • By developing and communicating a clear and logical turnaround plan, the gap between underlying asset value and current performance can be bridged, allowing the Company to refinance its debt and secure the liquidity needed to execute on its plan.