By Dean Seal
Compass Diversified has entered into a forbearance deal with its lenders and taken other actions to preserve liquidity after discovering accounting irregularities at one of its top subsidiaries.
The portfolio company for middle-market businesses said Tuesday that the agreement reached with lenders should help it maintain enough liquidity to keep normal operations going.
The company has also cut the management fees it pays to subsidiaries and suspended the quarterly cash distribution it pays to shareholders.
The temporary pause on loan payments and Compass's other actions come weeks after the company said an internal investigation into Lugano Holding, the high-end jewelry company it owns about 60% of, revealed issues with the subsidiary's internal financing, accounting and inventory practices.
Because of those issues, Compass said it can no longer rely on its financial statements for fiscal 2024. The company also delayed its quarterly earnings report, which Compass said Tuesday had resulted in it receiving a noncompliance notice from the New York Stock Exchange, where it lists.
Compass said that it is still investigating Lugano and that the noncompliance notice from NYSE doesn't affect its listing for the time being. Compass has six months to regain compliance by filing its quarterly report.
"Our structure and diversified business model give us the flexibility to help isolate and ring fence the challenges at Lugano while continuing to support the growth and execution of our healthy businesses," Chief Executive Elias Sabo said.
The company's stock dropped 11% to $6.70 in post-market trading.
Write to Dean Seal at dean.seal@wsj.com
(END) Dow Jones Newswires
May 27, 2025 17:18 ET (21:18 GMT)
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