Checkout Holdings Corp., a.k.a. Catalina Marketing, is negotiating a restructuring support agreement and DIP financing terms with a group of its first lien lenders as the company contemplates a chapter 11 bankruptcy filing in early December, according to sources. In proposals that have been exchanged, the parties are contemplating the lenders providing new money DIP financing in the range of approximately $150 million to $200 million to support the company’s ongoing operational needs during the bankruptcy proceedings, the sources add.
Sources say that negotiations have contemplated the company’s $1.1 billion in first lien term loan debt as the fulcrum and that the lenders are currently contemplated to receive the vast majority of reorganized equity in the business; Berkshire Partners currently owns the majority of the business. The parties are contemplating the company emerging with a revolving credit facility, as well as take-back debt not totaling more than approximately $300 million, sources say, adding that the company and ad hoc group of first lien lenders are also negotiating with an ad hoc group of second lien lenders represented by PJT Partners and Paul Weiss regarding recovery to holders of second lien debt in exchange for consent to plan terms. An ad hoc group of term loan lenders is advised by Evercore and Jones Day.
Catalina’s first lien term loan was quoted this morning at 29.5/31.5 from the 37/38 context in early November, and its second lien term was quoted in the mid-to-high single digits today, according to a trading desk.
Catalina
has been negotiating with certain creditors under non-disclosure agreements for weeks, and with advisors to all its creditors for months, as it looks to restructure more than $1.8 billion in funded debt. Operational declines at the company have also led to liquidity constraints as the company invests in technological improvements including hiring data scientists to improve the marketing database and continuing to build out Catalina’s cloud-based platform, as well as upgrading the company’s network and printer system in retail stores.
Management has determined not to post financial results for the third quarter of fiscal 2018 as it prepares for the bankruptcy filing, according to sources.
Second-quarter results for the period ended June 30 included a 9.7% year-over-year decline in adjusted EBITDA to $43.8 million, as well as a projection for Catalina to miss its budgeted EBITDA projection for the second half of the year because of headwinds in the U.S. segment. By geography, adjusted EBITDA in the U.S. was down approximately 15% year over year to approximately $39 million in the second quarter. In light of the company’s declining financial performance, Catalina
hired FTI Consulting as an operational advisor after holding pitches for the role in August.
The company’s capital structure includes a $100 million revolver that matures in April 2019, a $1.1 billion first lien term loan due April 2021, which accrues interest at LIBOR+350 bps with a 1% LIBOR floor, a $460 million second lien term loan due April 2022, which accrues interest at LIBOR+675 bps with a 1% floor, and $328 million in 11.5% unsecured PIK/toggle notes due 2023. In addition to the April 2019 revolver maturity, the company’s PIK/toggle holdco notes become mandatory cash pay in April 2019. A Crescent-led group of PIK/toggle holdco noteholders is advised by Houlihan Lokey and Debevoise & Plimpton, and the company is advised by Centerview Partners, Weil Gotshal and FTI Consulting.
The bankruptcy plans come less than two months after Catalina Marketing
announced Gerald "Jerry" Sokol Jr. as its new CEO, replacing Andy Heyman, who
departed in May after a
year and a half in the role. Catalina said in the announcement of Sokol’s appointment that he led Vertis Communications, “one of the largest printing and targeted direct marketing companies in the U.S.,” through its restructuring from 2009 to 2013, first as its CFO and then as CEO and president.
The company declined to comment for this story.