Tom Marsico and his team still control Marsico Capital Management [see profile], despite last week's debt restructuring. On Monday news broke that the Denver-based mutual fund firm restructured its multi-billion dollar debt, handing creditors a chunk of the company in the process (see The MFWire, 11/15/2010). Yet two top executives at Marsico subsequently confirmed that the creditors-turned-shareholders did not gain control of the company.

On Monday Marsico released a statement on the restructuring.

"100 percent of the voting control is held through Tom Marsico and the management team," chief financial officer Neil Gloude told The MFWire, adding that the bond holders who participated in the restructuring now hold "non-voting securities."

Marsico took on $2.5 billion in debt (now $2.7 billion) in 2007 to buy the firm back from Bank of America. Gloude explained that the debt restructuring on November 10, 2010 replaced Marsico's former holding company parent, Marisco Parent Co, with the brand new Marsico Holdings, LLC. Tom Marsico himself and employees like Gloude and executive vice president Tom Kerwin, together hold 51 percent of the new Marsico Holdings (and all of the voting rights), while Marsico's creditors hold the other 49 percent.

The restructuring leaves the new Marsico Holdings with about $1.66 billion in outstanding debt, Gloude said, which includes about $1 billion due at the end of 2014 and $600 million due in 2020.

"We believe that's a very good structure from a capitalization perspective," Gloude said.

Kerwin, Marsico's general counsel, clarified that the firm was current on all its debt payments prior to the restructuring.

"It was purely a technical default under conventions that S&P uses for any restructuring," Kerwin told The MFWire, noting that S&P then promptly withdrew the default rating. "There was in fact no default at all. This was purely a long-term issue for us, a precautionary restructuring."

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Company Press Release

We wanted to update you about a very positive development for Marsico Capital Management (“MCM”) and its clients, debtholders, and employees.

In 2007, MCM’s parent companies incurred some $2.5 billion in long-term debt to help finance the transaction in which we repurchased MCM from Bank of America in December 2007. Adjusted for principal payments and accrued interest since 2007, the amount had increased most recently to approximately $2.7 billion.

For the past three years and currently, MCM’s parent companies have been meeting their obligations on this debt, including making principal and interest payments. Although most of the principal was not scheduled to come due for several years, we decided early this year that it would be prudent for us to be forward-looking in evaluating any options we may have regarding our capital structure. As a result, we worked proactively with our senior lenders and bondholders and developed a strategy that comprehensively addresses our capital structure.

We are pleased to announce that on November 10, 2010, the parent companies of MCM completed a successful voluntary restructuring of the $2.7 billion in long-term debt, resulting in a favorable outcome for MCM clients, debtholders, and employees. The restructuring was approved by overwhelming majorities of debt security holders.

Highlights of Marsico’s successful balance sheet restructuring include:

Approximately $1.04 billion of the debt was extinguished altogether through an exchange of debt securities for a 19% equity stake in a new parent entity. This reduces the outstanding debt to $1.66 billion which will not begin coming due for a number of years.

No change of control occurred. Tom Marsico retains complete voting control over ongoing management and day-to-day operations. Tom and key employees own 51% of the new equity interests issued.

The senior bank debt of $1.0 billion stays in place, with a covenant change which results in a lower required level of assets under management.

$600 million of notes, or about 40% of the remaining debt, was replaced by a 30% equity stake and new notes with a longer maturity, flexible cash interest terms, and a stable level of cash flow to ensure the priority funding of strong investment team research, travel, information services, compliance and other client service expenses.

The level of support for the restructuring was extremely high. Fully100% of the holders of the $600 million of notes chose to participate in the deal. Of the $1.1 billion in more junior debt securities affected by the exchanges, 98%, 92%, and 89% of the holders voluntarily participated in the restructuring.

Standard & Poor’s (S&P), one of the ratings agencies that publishes ratings on the Marsico debt, as a standard company policy routinely treats any restructuring as a temporary technical “default,” regardless of how successful the restructuring is in economic terms. As of today, S&P has already withdrawn the “default” rating and issued new ratings on the $1.6 billion of outstanding debt. Moody’s is currently in the process of updating its ratings on the Marsico debt.

Others have recognized the benefits of Marsico’s successful restructuring, and issued positive statements, such as:

A Moody’s analyst said the Marsico companies “have gained some time with this restructuring to show they can outperform and increase the AUM.” Moody’s added that Marsico “has ample time to return AUM to adequate levels given that the majority of its debt is not due until December 2014, with the remainder maturing in 2020.”

An investment banker said that what Marsico has going for it is a strong track record overall, despite recent difficulties: “This is a superb money manager and they can rebound very swiftly if America is truly in recovery.”

A national consulting firm noted that it placed Marsico back on the list of money management firms it can recommend given the effectiveness and positive aspects of the restructuring. 

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