Compass Diversified Holdings 8-K

What Happened
Compass Diversified Holdings (via Compass Group Diversified Holdings LLC) announced on December 19, 2025 that it entered a Fifth Amendment to its credit agreement and a related Transaction Letter with Bank of America, N.A. (as Administrative Agent) and consenting lenders. The lenders agreed to waive certain existing defaults (including ones tied to financial covenants and Lugano Holding, Inc.), restored the aggregate revolving commitments to $100,000,000, and imposed new reporting, repayment and covenant terms tied to the company’s consolidated leverage and the Chapter 11 filing by Lugano on November 17, 2025.

Key Details

• Lender waivers: lenders waived certain events of default that were existing prior to the amendment, including defaults related to Lugano.
• Revolver and pricing: revolving commitments revert to $100,000,000; SOFR loans now priced at term SOFR + 1.50%–3.25% (tiered by Consolidated Total Leverage Ratio); base rate loans at base rate + 0.50%–2.25%.
• Cash flow and budgeting controls: CODI must provide a rolling 13‑week cash forecast every two weeks, variance reports for >10% deviations, and deliver an updated Lugano DIP Budget tied to the Lugano Chapter 11 proceedings.
• Restrictions and caps: management fees to the manager capped at $15,000,000 per fiscal quarter; Restricted Payments limited to $10,000,000 per quarter unless Consolidated Total Leverage Ratio ≤ 4.50:1.00.
• Deleveraging and proceeds: 100% of net cash proceeds from any Disposition or approved Deleveraging Transaction must be used to repay the debt.
• Transaction Letter milestone fees: if Consolidated Total Leverage Ratio ≥ 4.50:1.00 at the quarter-ends of 6/30/2026, 9/30/2026, 12/31/2026 and 3/31/2027, CODI must pay milestone fees of $5.0M, $6.5M, $8.0M and $9.5M, respectively, subject to conditions.
• Consent requirements: modifications to the Lugano DIP Budget, certain bankruptcy-related documents and CODI’s debtor-in-possession loan to Lugano require prior written consent of the Administrative Agent (or agent and consenting lenders).

Why It Matters
This amendment formalizes lender waivers and imposes tighter financial controls, reporting and repayment priorities in response to issues at Lugano and prior covenant breaches. For investors, the deal signals lenders’ willingness to stay with CODI but also reduced flexibility: higher oversight, limits on cash distributions and manager fees, mandatory use of certain sale proceeds to pay down debt, and potential sizable milestone fees if leverage remains above 4.50:1. These changes could affect CODI’s liquidity, dividend capacity, and strategic options while Lugano’s Chapter 11 proceedings are ongoing.