SCHEDULE 13D: Oaktree Reveals Significant Stake in Pinstripes Holdings, Signals Potential Restructuring Amid Financial Challenges

Oaktree Value Equity Fund and its affiliates have disclosed a 7.2% beneficial ownership in Pinstripes Holdings, Inc., primarily through warrants tied to secured loans, and are engaging in discussions regarding the Issuer's 'current financial situation' and potential strategic alternatives.

Summary

• Oaktree Value Equity Fund, L.P., Oaktree Capital Holdings, LLC, and Oaktree Capital Group Holdings GP, LLC (collectively, 'Oaktree Parties') beneficially own 3,087,250 shares of Pinstripes Holdings, Inc. Common Stock, representing 7.2% of the class.
• This ownership is derived from warrants exercisable at $0.01 per share, acquired in connection with secured loans provided to Pinstripes, Inc., a subsidiary of the Issuer.
• The initial 'Oaktree Tranche 1 Loan' of $50.0 million was provided on December 29, 2023, along with warrants for 2,500,000 shares.
• An additional 412,500 warrants were granted on June 27, 2024, because the volume-weighted average price of Common Stock fell below $6.00 per share during a specified measurement period.
• A 'First Amendment' to the loan agreement on September 3, 2024, allowed for additional 'Oaktree Tranche 2 Loans' of up to $50.0 million in multiple drawings, replacing a single $40.0 million option.
• A $3.0 million Oaktree Tranche 2 Loan was funded, leading to the issuance of 174,750 warrants on November 27, 2024.
• The one-year lock-up restriction on 2,912,500 Tranche 1 Warrants was eliminated as part of the First Amendment.
• The loans mature on December 29, 2028, accrue interest at 12.5% (cash or PIK, cash only after December 31, 2024) plus 7.5% (cash or PIK) quarterly, and are secured by a second lien on Pinstripes' assets.
• Financial covenants require Pinstripes to maintain a minimum total net leverage ratio, starting at 6.00:1.00 on January 6, 2025, and decreasing to 3.75:1.00 after January 2, 2028.
• Oaktree Fund Administration, LLC, as agent for the lenders, has appointed an observer to the Issuer's board of directors.
• Oaktree Parties are actively discussing Pinstripes' 'current financial situation' and exploring potential alternatives, including delisting, capital structure changes (such as converting loans to equity), and other strategic options like a potential sale or business combinations.

Sentiment

Score: 3

Explanation: The sentiment is negative due to explicit mentions of the Issuer's 'current financial situation' and the exploration of distressed scenarios such as delisting, debt/equity restructuring, and potential sale. While Oaktree's investment provides capital, the context suggests it's a response to significant financial challenges.

Positives

• The provision of secured loans totaling at least $53.0 million by Oaktree provides Pinstripes with significant capital, extending its liquidity and operational runway until December 29, 2028.
• The elimination of the one-year lock-up restriction on 2,912,500 Tranche 1 Warrants provides Oaktree with greater flexibility in managing its investment.

Negatives

• The document explicitly mentions the Issuer's 'current financial situation' as a driver for Oaktree's discussions, implying financial distress.
• The potential alternatives being discussed, such as delisting from the New York Stock Exchange, changes to the debt and equity capital structure, and a potential sale of the Issuer, often indicate significant financial challenges and could be detrimental to existing shareholders.
• The granting of additional warrants due to the volume-weighted average price falling below $6.00 per share suggests a significant decline in the company's stock value.

Risks

• Potential delisting of the Issuer's securities from the New York Stock Exchange, which could reduce liquidity and investor interest.
• Changes to the debt and equity capital structure of the Issuer, including potential conversion of Oaktree's loans into equity, which could dilute existing shareholders.
• Restructuring transactions that could lead to changes in the board of directors, potentially giving Oaktree Parties power to appoint a majority of its members.
• Changes to the governing documents of the Issuer and/or deregistering the Issuer's securities under the Exchange Act.
• The company's 'current financial situation' poses an inherent risk to its ongoing operations and valuation.
• Financial covenants requiring Pinstripes to maintain specific total net leverage ratios, with potential for default if not met.

Future Outlook

Oaktree Parties intend to continue discussions with Pinstripes' management and board regarding the Issuer's current financial situation. These discussions could lead to significant changes, including potential delisting from the NYSE, alterations to the debt and equity capital structure (such as converting Oaktree's loans into equity), and other strategic alternatives like a potential sale of the Issuer or business combinations. Oaktree may also seek to acquire or dispose of additional Pinstripes securities.

Management Comments

• The Oaktree Parties have had preliminary discussions, and intend to continue to have discussions, with members of the Issuer's management and board of directors as to a variety of considerations related to that situation and potential alternatives and actions to address that situation, although no informal or formal agreement or understanding has been reached by the Oaktree Parties with the Issuer in that regard.

Industry Context

This filing reflects a significant investment by a major alternative asset manager, Oaktree, in a company facing 'current financial situation' challenges. Such investments often occur in industries undergoing shifts or companies requiring capital for turnaround or strategic repositioning. The discussions around delisting, restructuring, and potential sale are common in situations where companies are seeking to optimize their capital structure or explore strategic exits amidst financial pressures.

Management Changes

Corporate Governance

Legal Proceedings

• On September 25, 2024, the SEC accepted an offer by Oaktree Capital Management LP (an affiliate of OCH) to resolve an investigation involving Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and related rules. OCM agreed to cease and desist from violations and pay a $375,000 penalty without admitting or denying the findings.

Related Party Transactions

• The loan agreements and warrant issuances are between Pinstripes Holdings, Inc. (and its subsidiaries) and Oaktree entities, which are now significant beneficial owners and lenders, constituting a related party transaction.

Stakeholder Impact

• Shareholders: Potential for significant dilution if loans are converted to equity, risk of delisting, and uncertainty regarding the value of their holdings due to potential restructuring or sale.
• Employees: Potential impact from strategic alternatives such as a sale or business combinations, which could lead to operational changes or workforce adjustments.
• Creditors: Oaktree, as a secured lender, has a second lien on substantially all assets, providing a level of protection, but other creditors may face risks depending on the outcome of restructuring.
• Customers: Potential impact on service or operations depending on the outcome of strategic alternatives or financial restructuring.

Next Steps

• Oaktree Parties intend to continue discussions with Pinstripes' management and board regarding the Issuer's financial situation and potential alternatives.
• Pinstripes and its guarantors are subject to financial covenants, including maintaining a minimum specified total net leverage ratio, starting January 6, 2025.
• Interest payments on the Oaktree loans will be required solely in cash after December 31, 2024, for the 12.5% component.
• The Issuer is required to file a registration statement covering the resale of shares underlying the Warrants and use commercially reasonable efforts to cause it to be declared effective.

Key Dates

Recommendation

Keywords

Pinstripes Holdings Inc., Oaktree Value Equity Fund, SEC Schedule 13D, Warrants, Secured Loans, Debt Restructuring, Equity Capital Structure, Delisting, Strategic Alternatives, Corporate Governance, Financial Distress, Investment Management, Common Stock