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Neiman Marcus Debt Rallies as Financial Results Top Expectations

Debt backing Neiman Marcus Group shot up today after the company posted financial results that bested analyst expectations due to better sales at its stores that it partly attributed to increased tourism and the oil patch recovery.

The issuer’s term loan due October 2020 (L+325, 1% LIBOR floor) was bracketing 90 this morning, up roughly two-to-three points since yesterday, sources said.

With the company remaining vague on its intentions to pay its interest in kind past the April 15 coupon date, the Neiman Marcus $628 million issue of 8.75%/9.50% senior PIK toggle notes due 2021 rallied more than eight points to a 14-month high of 68.75.

In an effort to preserve liquidity, the company previously elected to pay interest for the period to Oct. 14 in the form of more debt.

The company’s $960 million issue of 8% cash-pay notes due 2021 gained as much as 5 points, to 69.

The retailer today reported $1.48 billion in sales for its fiscal second quarter ended Jan. 27. The performance was up 6.2% from the year-ago equivalent period and above the $1.47 billion estimate cited in a note from Citi analyst Jenna Giannelli. Adjusted EBITDA for the quarter came in at $155 million, ahead of Citi’s $144 million projection and up roughly 22% from the same period last year.

Company executives in a conference call this morning cited improvements in the oil patch, which contributed to better operating results at its Texas stores, and increased tourism to its locations during the holiday season as some of the reasons behind the solid numbers.

On the call today, CEO Geoffroy van Raemdonck said the company has now recorded two straight quarters of sales increases for the first time since fiscal 2015, and that its online business now accounts for more than 34% of total revenue.

Also on the call, Chief Accounting Officer T. Dale Stapleton addressed the company’s liquidity position.

“I think we’re extremely comfortable with our liquidity providing us with sufficient funds to fund our operations as well [as] strategic initiatives,” Stapleton said, according to a transcript from S&P Global Market Intelligence. “So I think that’s one critical point. I think the second critical point is that with the maturity ladder of our debt, we don’t see the first maturities until October of 2020. And so given where we sit today, we believe that we have sufficient kind of runway to kind of think about our debt, our capital structure in a very thoughtful, deliberative and prudent way. Throughout kind of the downturn, I think we have been very active in managing our liquidity, and we will be active and proactive in managing through kind of our capital structure.”

Current CEO van Raemdonck joined the company earlier this year after Karen Katz stepped down from her post.

Corporate ratings are CCC/Caa2. — Kelsey Butler/Rachelle Kakouris

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American Greetings Nets Financing for Purchase by CD&R

American Greetings on Tuesday announced it has obtained committed financing from Barclays, Deutsche Bank, Citizens Bank, ING Capital, Bank of America Merrill Lynch, HSBC, Sumitomo Mitsui Financial Group, and KeyBanc Capital Markets to support Clayton, Dubilier & Rice’s purchase of a 60% ownership stake in the company. Further details of the financing were not yet disclosed.

The Weiss Family, which founded the company in 1906, will retain a 40% stake in the company, according to a company release. As reported, the issuer was taken private by the Weiss family in 2013, in a transaction backed by $600 million in debt financing, including a $400 million term loan and a $200 million revolving credit.

John Beeder, the current president and chief operating officer, will become chief executive officer at the close of the transaction, according to the company. Current co-CEOs Zev Weiss and Jeffrey Weiss, and current chairman Morry Weiss will sit on the board. David Scheible, an operating advisor to CD&R funds and former chairman and chief executive officer of Graphic Packaging, will become chairman of American Greetings. John Compton, a CD&R operating partner and former president of Pepsico, “will be actively involved with the business and serve on the company’s board,” the company said.

As reported, the issuer last tapped debt markets in February 2017, with a $400 million offering of 7.875% notes due 2025, with proceeds backing a tender offer for any and all of its $285 million of 9.75%/10.50% PIK-toggle notes due 2019 issued by Century Intermediate Holding Company, and the $225 million of 7.375% notes due 2021 issued by American Greetings.

The issuer’s 7.875% notes due 2025 were changing hands at roughly 102.75 on Tuesday, down 3.25 points from Thursday levels, according to MarketAxess.

S&P Global Ratings last month lowered the issuer’s outlook to negative, from stable, while keeping corporate and bond ratings unchanged at BB–, citing higher-than-expected leverage and concerns that leverage “may not materially improve, depending on the degree to which the company prioritizes debt repayment over dividends to its controlling owners, the Weiss family.” Moody’s meanwhile maintains corporate and bond ratings of B1 and B3, with a stable outlook. The issuer’s B term loan is rated BB+/Ba2.

American Greetings is a Cleveland-based designer, manufacturer and distributor of greeting cards, as well as gift packaging, party goods, and stationery products. — James Passeri

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Albertsons Debt Falls on Latest EBITDA Slump, Management Reshuffle

Debt backing Albertsons was falling today, after the Cerberus-controlled food and drug retailer again booked sharply lower quarterly earnings, with adjusted EBITDA of $429 million for the issuer’s fiscal third quarter, ending Dec. 2, down from $674.8 million for the same period last year.

Meanwhile, net sales of $13.6 billion “remained flat” over the period, according to a filing today, with $117.6 million and $95 million respective increases from fuel sales and sales from new stores and acquisitions, net of store closings, offset by a $225.3 million decline in same-store sales.

The retailer today also announced that Wayne Denningham, its president and chief operating officer, plans to retire by the end of the fiscal year, and that Albertsons has named Susan Morris as the company’s executive vice president and COO, to oversee the company’s supply chain, manufacturing, and operations functions.

Albertsons 5.75% notes due 2025 and 6.625% notes due 2024 were down three points and 2.75 points, respectively, in midday trading, falling to 87.5 and 93.25, according to MarketAxess. Meanwhile, Albertsons’ B-4 term loan (L+275, 0.75% LIBOR floor) was at a 97.5/98.5 market today, down more than a point from before the news, sources said, while the issuer’s B-5 term loan (L+300, 0.75% floor) was quoted at 97/98, a 1.5-point dip from the last session.

“We are very encouraged now that our identical store sales trends have turned positive in the fourth quarter of fiscal 2017, as our marketing and merchandising plans are taking hold, and prior year comparisons ease,” CEO Bob Miller said in a Tuesday statement. He noted that the company expects improvements to adjusted EBITDA in fiscal 2018, “as a result of $100 million in expected additional synergies from the Safeway acquisition as the SuperValu transition services agreement winds down, as well as from the implementation of $150 million of identified cost reduction initiatives.”

The company now forecasts fiscal 2018 EBITDA of roughly $2.7 billion, with expected capital expenditures for the period falling to $1.2 billion, indicating a decline of $300 million from the previous period.

Albertsons debt previously declined in October, after the food and drug retailer reported adjusted EBITDA of $485.2 million for the quarter ended Sept. 9, down from $573.7 million year-over-year, while net sales and other revenues of $13.83 billion dipped mildly over the period, from $13.86 billion.

As of Dec. 2, the issuer had no borrowings outstanding under its $4 billion ABL facility, and a total availability of roughly $3 billion net of letters of credit usage.

The food and drug retailer in May repriced all three term loans. Of note, Albertsons on Sept. 25 inked a sale-leaseback deal for 71 of its store properties for an aggregate purchase price of $705 million, net of closing costs. “After giving effect to the sale-leaseback transaction, the company owns or ground leases approximately 43% of its stores with an appraised value of $11.5 billion,” the company noted in its filing.

Albertsons is a Boise, Idaho–based U.S. food and drug retailer, controlled by Cerberus Capital Management, operating 2,323 retail food and drug stores as of Dec. 2. — James Passeri/Kelsey Butler

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PetSmart High Yield Debt Tumbles after 3Q Earnings Miss

Debt backing PetSmart was falling more deeply into distressed territory on Tuesday after the privately held pet retailer unveiled lackluster third-quarter earnings, with sources highlighting adjusted EBITDA for the period of roughly $189 million, shy of expectations and down about 34% year-over-year.

“We think this is going to go lower into distressed with retail pressures,” sources noted, highlighting negative fourth-quarter outlook chatter on the issuer’s earnings call yesterday. “People are really going to be focusing on this going forward. There’s definitely a lot of pressure.”

PetSmart 5.875% first-lien notes due 2025 and 8.875% senior notes due 2025—both of which priced at par in May, as part of a $2 billion offering backing the purchase of Chewy.com—were falling in blocks Tuesday by 4.125 points and five points, respectively, according to MarketAxess, to 81.25 and 70.

Meanwhile, the issuer’s B term loan due March 2022 (L+300, 1% LIBOR floor) was off by more than two points on the day, falling to quotes of 82.25/83.25, from bid quotes of 84.5 Monday, sources noted.

The Phoenix-based retailer has most recently been pressured by mounting market speculation over whether PetSmart could split from Chewy.com in a spin-off to sponsors, which could be impeded by restricted-payment covenants tied to the issuer’s senior debt.

Following the PetSmart’s second-quarter earnings roll-out in September, the company’s senior and unsecured debt was also downgraded on Sept. 18 by S&P Global Ratings to B and CCC+, respectively, from B+ and B–, keeping respective recovery ratings of 3 and 6 unchanged. S&P Global also lowered the issuer’s corporate credit rating to B from B+, with a negative outlook remaining in place.

“Factors contributing to our downward revisions include greater competition in the pet retailing space with mass retailers and other online retailers competing aggressively for pet food market share. We also think management turnover will complicate operational and acquisition execution,” S&P Global noted in a Sept. 18 report.

Moody’s maintains a B1 corporate credit rating on PetSmart, with a negative outlook, with Ba3 and B3 ratings on the issuer’s secured and unsecured debt, respectively. — James Passeri/Rachelle Kakouris

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Mattel Bonds Tumble on Guaranteed Debt Roll-Out, Ratings Downgrades

Bonds backing fallen angel Mattel fell today after the toy maker rolled out weakened sales guidance for the remainder of 2017, alongside plans to issue $1 billion of unsecured notes, with priority claims that effectively prime its existing unsecured bonds. The new senior notes will be marketed alongside roughly $1.6 billion in new asset-backed lending (ABL) revolving credit, under ratings that were cut again today deeper into junk territory by all three ratings agencies.

Sources noted existing bondholders would end up with the “short end of the stick” in light of the proposed debt launches. Mattel’s corporate and unsecured bond ratings were cut on Monday by S&P Global Ratings to BB–, from BB, with a negative outlook remaining in place and a 3 recovery rating assigned to the proposed new unsecured notes. However, S&P revised the recovery rating for the existing unsecured stack to 4, as existing noteholders are impaired by the ABL revolver in the capital structure and subsidiary guarantees in the new proposed notes, “which result in higher priority claims ahead of the existing notes.”

This marks S&P’s third cut to the issuer’s credit rating since July, when ratings were first cut by one notch from BBB on flagging operational metrics, and then again in October by two notches following the bankruptcy of key retailer Toys R Us in September.

Mattel 3.15% notes due 2023 and 6.2% notes due 2040 bore the brunt of the damage, sliding roughly four points and 5.5 points, respectively, to 90.5 and 93.5, according to MarketAxess. The 2040 bonds traded near 110% of par ahead of the S&P fallen-angel downgrade in October. Meanwhile, the issuer’s 2.35% notes due 2019 were off by about a point, falling to 97.8.

Moody’s today downgraded Mattel’s unsecured bonds to Ba3, from Baa3, and assigned a Ba2 corporate rating on the issuer. Fitch Ratings, meanwhile, downgraded Mattel’s issuer default rating to BB, from BBB–, and its existing senior unsecured notes to BB–, from BBB–. Fitch also assigned a BB rating to Mattel’s proposed $1 billion of senior notes.

Mattel now expects its full-year 2017 gross sales will decline in percentage by at least the mid-to-high single digits compared to 2016, in contrast with June guidance of “mid-to-high single digit revenue growth, and operating profits at, or above, 15%.”

The company today pointed to “key retail partners moving toward tighter inventory management” and challenges facing Toy Box and other underperforming brands.

“The unfavorable year-over-year gross margin experienced during the first nine months of 2017 is expected to continue throughout the fourth quarter of 2017, as a result of unfavorable product mix, higher freight and logistics expense, and lower fixed cost absorption,” the company noted in a Monday filing. “In addition, continued negative trends in top line performance for the balance of the year could result in additional gross margin deterioration as a result of higher inventory write-downs and discounts offered to clear inventory.”

The company added that it expects to achieve in 2018 a third of its projected $650 million in cost savings through 2019, while incurring about $200 million of related severance and restructuring costs between the current quarter and end of 2019.

The company’s CEO, Mary Margaret Hastings Georgiadis, on Oct. 26 emphasized that the company “will clearly not achieve the top line expectation we discussed in June,” based on lackluster quarterly earnings, in which adjusted EBITDA of roughly $227 million fell 31% shy of analyst forecasts, based on S&P Global consensus data, prompting downgrades by both S&P and Moody’s.

Mattel (NASDAQ: MAT) is an El Segundo, Calif.–based toy manufacturer. — James Passeri

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GNC Returns to Leveraged Loan Market with High-Yielding Credits

GNC logoStruggling retailer GNC Holdings is taking another run at the U.S. leveraged loan market, and will be paying up in the process.

GNC today relaunched a transaction that includes a $300 million B-1 term loan due Jan. 31, 2020, and a $905 million B-2 term loan due Jan. 31, 2021, sources say. The new debt will refinance the company’s existing TLB and revolver, coming due next year.

Price talk on the B-1 is 850–900 bps over LIBOR, while price talk on the B-2 is 950–1,000 bps over LIBOR. When taking into account that the loans are being offered at 96 cents on the dollar, the yield to maturity on the credits works out to roughly 12.9% and 13.5%, respectively.

GNC earlier this month launched a $705 million, five-year B term loan that was talked at L+700. That credit was not completed. Proceeds from that term loan were set to be used alongside an adjoining bond offering to refinance the company’s B term loan and revolver.

The debt to be refinanced, put in place in 2013, is priced at 250 bps over LIBOR. GNC had a BB+ corporate credit rating at the time of the original deal. The company currently has a B corporate credit rating.

In May, GNC Holdings discontinued a planned amend-to-extend loan.

GNC shares have been buffeted of late, declining some 50% YTD and by roughly 17% since the company’s last earnings report, a month ago, according to Nasdaq.com.

Pittsburgh-based GNC (NYSE: GNC) is a global specialty health, wellness, and performance retailer. — Richard Kellerhals

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Hostess Eyes $994M Leveraged Loan to Reduce Borrowing Costs

Hostess logo

Hostess Brands is returning to market with a refinancing transaction that will extend maturity and lower pricing on its $994 million covenant-lite first-lien term loan, according to sources. Credit Suisse will hold a lender call today at 2:30 p.m. EST, and commitments will be due by 5 p.m. EST on Wednesday, Nov. 15.

With this transaction the issuer will extend maturity on the loan by one year, to August 2023. Pricing will be reduced to L+225, from the current L+250, and will include a 25 bps ratings-based step-down. The LIBOR floor is unchanged at 0.75%. The loan is offered at an OID of 99.875 and the 101 soft call will be reset for six months.

At that talk, the loan would yield about 3.71% to maturity.

Current facility ratings are BB–/B1, with a 2 recovery rating from S&P Global Ratings. Corporate ratings are B+/B1.

Hostess Brands (Nasdaq: TWNK) operates several bakeries in the U.S., producing snack cakes under the Hostess and Dolly Madison brand names. — Jon Hemingway

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Retailer GNC Eyes $705M Leveraged Loan Refinancing That Would Yield 9.25%

GNC logoA Bank of America Merrill Lynch–led arranger group this afternoon launched a $705 million, five-year B term loan for GNC Holdings, setting price talk at L+700, with a 1% LIBOR floor and 97.5–98 OID, sources said. Commitments are due Friday, Nov. 17 by noon EST.

The transaction includes 102 and 101 hard call premiums. The loan is covered by a maximum total net leverage covenant set at 6.75x, with a step down to 6.5x on March 31, 2021.

Additional arrangers include Barclays, BMO Capital Markets, Citizens, and J.P. Morgan.

Proceeds from the term loan will be used alongside an adjoining bond offering to refinance the company’s B term loan and revolver.

In May, GNC Holdings discontinued a planned amend-to-extend transaction.

Late in 2013 GNC closed a $1.35 billion, five-year leveraged loan refinancing. That credit was priced at LIBOR plus 250 bps.

Pittsburgh-based GNC (NYSE: GNC) is a global specialty health, wellness, and performance retailer.

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Revlon Bonds, Term Loan Tumble on Disappointing 3Q Results

Revlon’s unsecured bonds and term loan were falling sharply in early trading Friday—finding new lows and edging into distressed territory—after the issuer reported its third-quarter results, revealing adjusted EBITDA that barely reached the halfway mark to analyst forecasts.

The New York beauty and personal care products company on a conference call with analysts this morning acknowledged weak U.S. sales trends, while also trying to refocus the outlook on the potential benefits of Revlon’s continued integration with Elizabeth Arden.

The issuer’s 5.75% notes due 2021 were down roughly 7.5 points, to a new low of 79.25, according to MarketAxess. The 2021 notes changed hands at 89 handles over the first two weeks of October, and traded at 90.875 in the middle of August. Revlon 6.25% notes due 2024 were also trading briskly in blocks on either side of 67, also a new low, or down 6.875 points on the day and 8.75 points week to week. The notes traded north of 80 as recently as Sept. 12, trade data show.

Meanwhile, Revlon’s B term loan due September 2023 (L+325, 0.75% LIBOR floor) was quoted at 81.5/83.5 and 81.75/84.75 this morning, down from mid-80s yesterday, sources said. As of Sept. 30, there was $1.738 billion outstanding on the loan, according to SEC filings. Revlon shares (NYSE: REV) were down roughly 9.8% to $20.20 in morning trading.

The company reported adjusted EBITDA for the quarter of $53.6 million, roughly 49% below analyst estimates, while sales of $666.5 million were up 10.2% year-on-year, primarily driven by the Elizabeth Arden acquisition, but down 10.5% on a pro forma basis, largely due to weakness in the company’s North America mass retail channel.

“The declines in the U.S. can be attributed to the continued migration of consumers to specialty beauty retailer, online purchasing, store closures, inventory reductions among several mass retail partners, incremental adjustments to return and markdowns and inventory rebalancing with select salon distributors,” Revlon CEO Fabian Garcia said on the conference call, noting that sales were further hampered by disruptions in Florida and Texas related to hurricanes.

Garcia emphasized that Revlon expects to generate $190 million over the next several years in synergies through its acquisition of Elizabeth Arden, which was completed in September last year, representing a $50 million increase over initial cost savings projections.

Revlon CFO Christopher Peterson said it was unlikely that the company would need to tap debt markets again in the near-term, given what the company views as a relatively strong liquidity position, despite a reduction in cash on hand to $79.2 million at Sept. 30, from $99.2 million a year earlier. Peterson said the company is in a favorable position to repatriate its international balance sheet cash without incurring a tax liability.

“So we’re very comfortable with our liquidity position and don’t foresee any need to go to market and do anything differently,” he added.

Revlon last tapped the debt markets in July 2016, with its B term loan, then totaling $1.8 billion, alongside the $450 million of 6.25% unsecured notes due 2024, with proceeds backing a refinancing and the acquisition of Elizabeth Arden.

Revlon is a New York-based manufacturer and marketer of beauty and personal care products worldwide. — James Passeri/Kelsey Butler

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Office Depot Boosts Pricing in Effort to Complete $750M Leveraged Loan

office depotFacing pressure from competitors like Amazon, and a retail malaise in general, Office Depot is out with investor-friendly changes to a planned $750 million leveraged loan, and is seeking recommitments today by 5 p.m. EDT, with allocations to follow thereafter, according to sources.

Price talk is boosted to L+700, from L+500–525 at launch, with a 1% LIBOR floor and an original-issue discount of 97, revised from 98.5. Tenor was cut to five years, from six years, and call protection was switched to hard calls of 102 and 101 in years one and two, from six months of soft call. Also, the loan will now amortize at 10% per annum, compared to 5% previously.

At the revised pricing, the yield to maturity is 9.66%, compared to 6.88–7.15% under the prior guidance.

Among other changes, a springing minimum-liquidity covenant was added of $400 million at 1.5x gross secured leverage. The ECF sweep is set at 75% at secured net leverage greater than 0.8x, with leverage-based step-downs.

The incremental starter basket was removed and an MFN sunset was dropped. All grower baskets were removed. Also, the general restricted payments basket was cut to $10 million, from $150 million, and the general investment basket was trimmed to $50 million, from $150 million. Collateral for the loan was expanded to include Office Depot’s headquarters.

Proceeds will be used to finance the proposed acquisition of IT services provider CompuCom Systems from Thomas H. Lee Partners for $1 billion and to refinance roughly $767 million of the target’s net debt. The company also plans to fund the deal with cash and common stock.

For reference, CompuCom’s outstanding debt includes a covenant-lite term loan due 2020 (L+325, 1% LIBOR floor) and $225 million of 7% notes due 2021.

Pro forma leverage is 1.1x through the secured debt and 1.3x total, based on $790 million of LTM adjusted EBITDA through July 1, according to a lender presentation. Pro forma net leverage is 0.4x/0.6x, the company notes.

Agencies have assigned facility ratings of B+/B1, with a 2 recovery rating from S&P Global Ratings. Corporate ratings are B/B1, with negative and positive outlooks.

Office Depot (Nasdaq: ODP) is a provider of office supplies, business products, and services delivered through an omnichannel platform. — Jon Hemingway

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