Compass Diversified Looks to Cut Debt in ‘Most Challenging’ Time

Core Viewpoint - Compass Diversified is exploring the sale of some businesses to reduce debt and is preparing to restate financials due to alleged fraud at its jewelry subsidiary [1][3]. Group 1: Financial Challenges - The firm is currently out of compliance with leverage ratio covenants in its credit facility, making debt reduction a top priority [1]. - Compass is in active discussions with senior lenders to amend its credit agreement for additional flexibility regarding current debt levels [2]. - The company anticipates compliance with its leverage covenant by 2026 [4]. Group 2: Fraud Allegations and Impact - Compass is preparing to release restated financial statements for 2022 through 2024 after discovering irregularities at its Lugano Diamonds & Jewelry Inc. subsidiary [3]. - Lugano filed for Chapter 11 bankruptcy after accusations of inflating revenue through misrepresented diamond investment contracts [3]. - The alleged fraud was confined to the Lugano business and did not impact other subsidiaries, which include The Honey Pot and Arnold Magnetic Technologies [5]. Group 3: Strategic Options - The firm is exploring options for divesting one or more subsidiaries to accelerate debt reduction [4].