Primary: Getty Images’ New Unsecured Notes Provide Limited Flexibility to Transfer Assets to Unrestricted Subsidiaries, Incur Debt

   
As reported, Getty Images Inc. (“Getty”), a visual media company based in Seattle, is planning to sell $400 million of eight-year senior notes with a three-year noncall period (the “Senior Notes”). Proceeds from the bond deal, along with funds from new credit facilities, will be used to refinance Getty’s existing capital structure in full. The new credit facilities are expected to include a seven-year $1.445 billion term loan, with $1.085 billion to be U.S. dollar-denominated and the balance in euros, and a five-year $80 million revolver, which is expected to remain undrawn at closing. The revolver may be increased to up to $110 million, according to sources.

We attach a summary of the offering memorandum including certain covenants under the Senior Notes. We calculate allowed indebtedness and restricted payments based on the offering memorandum. Additional indebtedness is somewhat limited due to Getty’s inability to meet certain leverage tests based on run-rate EBITDA disclosed in the OM. If EBITDA were to improve, Getty would be able to incur additional secured and unsecured debt.

Getty’s capital structure as of Sept. 30, adjusted for the issuance of the Senior Notes, is illustrated below for reference:
 
Sources and uses for the transactions, including the notes offered herein, are summarized below:
 
The Senior Notes will be unsecured and will be guaranteed by each of Getty’s current and future domestic subsidiaries that guarantee the new credit facilities.

According to the OM:
 
In the OM, Getty has projected that its fiscal year 2018 run-rate adjusted EBITDA will be between $293 million and $296 million. The company has also disclosed that its LTM run-rate adjusted EBITDA as of Sept. 30 was about $296 million.

Based on the company’s projected run-rate adjusted EBITDA for 2018, as illustrated below, we estimate that adjusting for the issuance of the Senior Notes, its first lien/secured leverage ratio would be between 4.75x and 4.8x, its total leverage ratio would be between 6.1x and 6.16x and its fixed charge coverage ratio, based on interest expense prior to the new issuances, would be between 2.07x and 2.1x.
   
Leverage-Based Baskets - Although the Senior Notes permit Getty to incur debt and liens and make restricted payments and leverage-based investments if it can meet specified leverage tests, as illustrated below, based on the company’s projected run-rate adjusted EBITDA for 2018, it will likely be unable to access these baskets on the issue date.
 
Debt and Liens - In addition to leverage-based credit agreement debt, ratio debt and leverage liens, the Senior Notes permit Getty to incur debt and liens under the following baskets:
 

• A $1.65 billion credit agreement debt basket;
   
• A general debt basket not to exceed the greater of $100 million and 35% of EBITDA ($103 million to $104 million based on projected EBITDA); and
   
• A general liens basket not to exceed the greater of $60 million and 20% of EBITDA (about $59 million based on projected EBITDA).
   

Given $1.445 billion of outstanding term loans, assuming the company wants to preserve the ability to draw on its $80 million revolver, the credit agreement debt basket likely permits the company to incur an additional $125 million of secured debt.

Taken together, assuming a fully drawn revolver, the company is likely permitted to incur an additional $185 million of secured debt and $43 million to $44 million of unsecured debt, based on projected EBITDA.

The company’s foreign subsidiaries are also permitted to incur $60 million of structurally senior debt.

Transfers to Unrestricted Subsidiaries - Although the company is likely only permitted to pay $50 million of dividends under a general restricted payments basket, its ability to transfer assets to unrestricted subsidiaries is higher.

In addition to using the general restricted payments basket, Getty can use the following baskets to transfer additional assets to unrestricted subsidiaries:
 

• A basket for investments in unrestricted subsidiaries not to exceed the greater of $75 million and 25% of EBITDA ($73 million to $74 million based on projected EBITDA); and
   
• A general investments basket not to exceed the greater of $100 million and 35% of EBITDA ($103 million to $104 million based on projected EBITDA).
   

Taken together, Getty is likely permitted to transfer at least $228 million to $229 million of assets to unrestricted subsidiaries, based on projected EBITDA; an aggressive interpretation of the definition of a “Similar Business” might give the company $90 million of additional capacity under a similar business investment basket not to exceed the greater of $90 million and 30% of EBITDA ($88 million to $89 million).