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The Deal: PIK Interest Mounts at Pulse Electronics

"[Pulse CEO] Ralph [Faison] pitched the offer as wildly undervalued," the hedgie said.

More than a year and a half after Bel Fuse's offer, looming debt maturities forced Pulse to take action, and Oaktree Capital recapitalized the firm with a $102.7 million debt and equity offer that gave the Los Angeles investment firm a 49% stake.

Oaktree gave Pulse a $75 million senior secured term A loan with a 12% annual interest rate, and exchanged $28.5 million of principal and unpaid interest on its 7% senior convertible notes for a new $28.5 million secured term B loan. Pulse started out with $50 million of 7% notes. The term loans mature on Nov. 20, 2017.

"Nothing has played out the way management promised for years," the former investor said. "When we bought in, [Pulse] had relatively low debt compared to earnings."

Moyer didn't respond to requests for a comment on Pulse's debt service strategy and its potential exchange offer.

The company reported $23.2 million in cash and cash equivalents at June 28, and $88.3 million of net sales for the second quarter. According to data from Bloomberg Financial, Pulse has Ebitda of $7.4 million and a debt-to-assets ratio of 51.3%.

The earnings call touted a cost-cutting program that is designed to cut $6 million annually.

Colin Dunn, the vice president of finance at Jersey City, N.J.-based Bel Fuse, was wistful about a missed opportunity for greater synergies between the two electronic components makers in an Aug. 7 phone interview.

"We would have created more value, there's no doubt about that," he said. "There's overcapacity in this industry, and no one was really making money [at the time of the takeover offer]."

Pulse's rejection of the offer "just seemed illogical to us," Dunn said, explaining that a combination would have cut overhead costs by eliminating duplication in areas such as corporate staff and sales staff. "There were a lot of low-hanging overheads that could have been squeezed out. It becomes a volume proposition -- you've got to manage fixed overheads."

Although Bel Fuse is currently looking for acquisitions -- the commercial aerospace sector, particularly fibers, is of interest -- Pulse is not on its wishlist any more.
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