SCHEDULE 13D/A: Oaktree Capital Seizes Control of Pinstripes Holdings in Distressed Recapitalization Deal

Oaktree Capital has significantly increased its control over Pinstripes Holdings, providing additional debt funding, acquiring more warrants, and entering a binding letter of intent for a recapitalization that would grant Oaktree 85% ownership and full board control, contingent on NYSE delisting.

Summary

• Oaktree Lenders provided an additional $6.0 million Tranche 2 Loan on January 21, 2025, and $7.5 million on March 7, 2025, to Pinstripes Holdings, Inc.
• In connection with these loans, Pinstripes issued warrants to OCM exercisable for 349,500 shares and 436,875 shares of Common Stock, respectively.
• The interest rate on Oaktree Tranche 1 and Tranche 2 Loans was increased to 20% per annum, payable quarterly in cash or in kind.
• Pinstripes entered into a binding Letter of Intent with OCM for a recapitalization transaction.
• The recapitalization plan proposes Oaktree Lenders holding 85% of Pinstripes' Common Stock, with existing stockholders retaining 15%, subject to dilution from a 10% management incentive plan and new preferred stock.
• The existing Oaktree indebtedness will remain, with the make-whole payment converted into preferred stock bearing an 8% PIK coupon.
• As a condition of the recapitalization, Pinstripes' Common Stock will be delisted from the New York Stock Exchange.
• Oaktree will appoint all of the Issuer's directors following the closing of the recapitalization.
• The deadline for Pinstripes to consummate an equity transaction was extended from March 21, 2025, to March 31, 2025.
• Pinstripes is required to retain an OCM-approved consulting firm and appoint a representative of that firm as an officer reporting to the Board.

Sentiment

Score: 2

Explanation: The document reveals a company in severe financial distress, evidenced by a significant increase in loan interest rates, substantial dilution for existing shareholders, loss of board control to the lender, and a planned delisting from the NYSE. While new funding provides short-term liquidity, the terms of the recapitalization are highly unfavorable to current equity holders, indicating a distressed asset scenario.

Positives

• Pinstripes Holdings, Inc. secured an additional $13.5 million in Tranche 2 loans ($6.0 million on January 21, 2025, and $7.5 million on March 7, 2025), providing crucial liquidity.
• The milestone deadline for consummating an equity transaction was extended from March 21, 2025, to March 31, 2025, offering more time for the company to meet its obligations.

Negatives

• The interest rate on Oaktree Tranche 1 and Tranche 2 Loans increased significantly to 20% per annum, indicating increased financial distress and higher cost of capital for Pinstripes.
• Existing stockholders will face substantial dilution, with their ownership reduced to 15% of the Common Stock post-recapitalization, subject to further dilution from a 10% management incentive plan and new preferred stock.
• Oaktree Capital Management will gain full control of Pinstripes' Board of Directors following the recapitalization, effectively removing control from existing shareholders.
• The company's Common Stock is a condition of the recapitalization to be delisted from the New York Stock Exchange, which will severely limit liquidity and market access for existing shareholders.
• The Issuer is now subject to stricter financial reporting covenants, including monthly sales reports, unaudited balance sheets, and projected operating budgets.
• The $7.5 million loan proceeds are subject to a control agreement, requiring utilization consistent with an approved budget and weekly withdrawal notices to Oaktree Fund Administration, LLC, indicating tight financial oversight by the lender.
• Pinstripes is required to retain an OCM-approved consulting firm and appoint a representative of that firm as an officer reporting to the Board, suggesting a lack of confidence in current management's ability to execute.

Risks

• Significant Dilution: Existing shareholders face substantial dilution, with their ownership stake reduced to 15% post-recapitalization, subject to further dilution from a 10% management incentive plan and preferred stock.
• Loss of Control: Existing shareholders will lose all board control as Oaktree Capital Management will appoint all directors post-recapitalization.
• Delisting Risk: The company's Common Stock is a condition of the recapitalization to be delisted from the New York Stock Exchange, which will severely impact liquidity and market access for shareholders.
• Increased Debt Burden/Cost of Capital: The interest rate on existing loans has increased to 20% per annum, indicating a higher cost of capital and increased financial strain.
• Operational Control by Lender: The requirement to retain an OCM-approved consulting firm and appoint one of its representatives as an officer, along with strict control over loan proceeds, indicates Oaktree's deep involvement in and oversight of Pinstripes' operations.
• Failure to Meet Milestones: The company is required to achieve certain milestones related to strategic alternatives and an equity transaction, with potential negative consequences if not met.
• Exclusivity Clause: Pinstripes is restricted from pursuing alternative transactions prior to the termination of the Letter of Intent, limiting its options.
• Uncertainty of Recapitalization Closing: The recapitalization transaction is subject to conditions, and there is no guarantee it will close, potentially leaving the company in a more precarious financial position.

Future Outlook

Pinstripes Holdings, Inc. is pursuing a binding recapitalization transaction with Oaktree Capital Management, which, if closed, will result in Oaktree holding 85% of the company's common stock and appointing all directors, while existing shareholders will be significantly diluted and the company's stock will be delisted from the NYSE. The company is also working to meet an extended deadline of March 31, 2025, for consummating an equity transaction and is required to bring in an OCM-approved consulting firm to provide advisory services and appoint one of its representatives as an officer.

Industry Context

This filing indicates a distressed situation for Pinstripes Holdings, Inc., a company in the entertainment and hospitality sector. The significant increase in interest rates on its loans to 20% and the proposed recapitalization, which involves a substantial equity transfer to the lender and delisting, are characteristic of a 'loan-to-own' strategy often employed by distressed debt investors like Oaktree Capital. This suggests Pinstripes is facing severe financial challenges, potentially exacerbated by broader industry pressures or specific operational issues, leading to a loss of control to its primary lender.

Management Changes

Corporate Governance

Related Party Transactions

• The Oaktree Lenders (Oaktree Value Equity Fund, L.P., Oaktree Capital Holdings, LLC, Oaktree Capital Group Holdings GP, LLC) are providing loans and receiving warrants from Pinstripes Holdings, Inc.
• Oaktree Capital Management, L.P. (OCM) is the entity with which Pinstripes entered into the binding Letter of Intent for recapitalization and will appoint directors.
• Oaktree Fund Administration, LLC (OFA) is involved in the loan agreements and control of funds.

Stakeholder Impact

• Shareholders: Existing common stockholders will face severe dilution, with their ownership reduced to 15% post-recapitalization, and the company's stock will be delisted from the NYSE, significantly impacting liquidity and investment value.
• Creditors (Oaktree Lenders): Oaktree Lenders are converting their debt position into a controlling equity stake (85%) and preferred stock, securing their investment and gaining significant upside potential if the company recovers under their control.
• Management/Employees: A management incentive plan (MIP) equal to 10% of Common Stock is proposed, potentially incentivizing key personnel, but a new OCM-approved officer will be appointed, indicating a shift in operational leadership and oversight.
• Customers/Suppliers: The immediate impact is likely indirect, as the recapitalization aims to stabilize the company, potentially ensuring continued operations. However, changes in management and strategy could affect business relationships.

Next Steps

• Consummate the proposed recapitalization transaction with Oaktree Capital Management.
• Meet the extended milestone deadline for an equity transaction by March 31, 2025.
• Retain and appoint a consulting firm designated by the Board and approved by OCM by March 7, 2025 (or later).
• Appoint a representative of the approved consulting firm as an officer of the Issuer by March 12, 2025 (or later).
• Delist Common Stock from the New York Stock Exchange as a condition to closing the recapitalization.

Key Dates

Recommendation

Keywords

Pinstripes Holdings, Oaktree Capital, SEC Filing, Schedule 13D, Recapitalization, Debt Financing, Warrants, Equity Dilution, NYSE Delisting, Corporate Governance, Distressed Assets, Financial Restructuring, Loan Amendment, Common Stock, Investment Fund