Thu 07/05/2018 12:46 PM
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In conjunction with efforts to address its capital structure, David’s Bridal has solicited and received proposals from third parties for a refinancing of the company's existing term loan and ABL revolving credit facility, according to sources. The new-money financing would be used to refinance approximately $490 million in existing term loan debt due in October 2019 and the company’s $125 million revolver, which matures in July 2019 unless the term loan has been refinanced by that time, the sources said.

The company’s advisors Debevoise & Plimpton and Evercore have simultaneously been in discussions with advisors to the company’s existing creditors, including both term loan lenders and noteholders, according to sources. The advisors to at least some of these creditors have been completing due diligence under nondisclosure agreements, as reported previously.

A group of the company’s term loan lenders, represented by Jones Day as legal counsel and Greenhill as financial advisor, is working on developing its own proposal to submit to the company, sources say. The group - whose advisors have been completing due diligence - are preparing a term sheet that would contemplate either a paydown of their loan with proceeds from the refinancing (if consummated) or a restructuring support agreement that would see the lenders receive ownership of the company in a chapter 11 scenario, sources add.

Additionally, the company’s capital structure includes $270 million in unsecured notes due in October 2020, and a large holder of those notes has retained Moelis & Co. and Paul Weiss as financial and legal advisors, while a minority noteholder group is being advised by Fried Frank as legal counsel, according to sources. Moelis and Paul Weiss have been completing due diligence under nondisclosure agreements for their client, as reported previously.

The maturity on the company’s $125 million asset-based revolver springs to July 2019 if the term loan is not refinanced by that time and the company must address the upcoming maturities prior to the release of second-quarter earnings (expected around August) in order to avoid going-concern language potentially being included in those financials, sources note.

If a restructuring in bankruptcy court is necessary, a prepackaged restructuring during the summer would also help to avoid disruptions to bridal orders because the seasonality of the bridal business typically sees less orders during the third quarter - which begins in July - and the fourth quarter - which begins in October. In 2017, first-quarter revenue totaled $214 million, second quarter revenue totaled $216.8 million, third quarter revenue totaled $179 million and fourth-quarter revenue totaled $134 million, according to sources. For the first quarter of 2018 ended March 31, net sales were down 0.9% year over year to $211.5 million due to deferred revenue and adjusted EBITDA was up 2% year over year to $23.4 million.

In a February downgrade report, Moody’s downgraded the company's senior secured term loan rating to Caa2 from Caa1 and senior unsecured notes rating to Ca from Caa3, and the outlook was changed to negative from stable. “Moody's expects that any near-term earnings improvement from lapping the 2016 website challenges and expansion of DB Studio low-priced casual bridal gowns will be insufficient to reduce leverage towards a sustainable level,” the report stated.

The company ended the first quarter of 2018 with a total cash balance of $33 million, compared with $8 million at year-end. The company had $86.4 million in availability under its undrawn revolver at quarter-end. The company generated $34.8 million in free cash flow during the quarter, compared with $48.9 million in the first quarter of 2017.

David’s Bridal CFO Joan Hilson said on the call that the company “continues to have ample liquidity” and that the business performance remains stable. She confirmed that the company has retained Evercore to assist the company in “proactively” evaluating alternatives for the company’s capital structure ahead of 2019 maturities, adding that the company does not expect that process to affect business or interfere with day-to-day operations.

The company’s $492.1 million term loan due October 2019 was quoted today at 88.5/89.5, according to a trading desk, and the company’s $270 million in unsecured notes due October 2020 last traded at 48.5 on May 15, according to TRACE.

David’s Bridal and its private equity sponsor Clayton, Dubilier & Rice did not respond to requests for comment.
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