In cleansing materials released Friday to Intralinks and reviewed by Reorg, David’s Bridal disclosed certain preliminary third-quarter results, projections for full-year 2018 and 2019 and details regarding restructuring negotiations with creditors. The disclosures include a restructuring term sheet proposal submitted by the company to stakeholders on Oct. 3 and a counterproposal submitted by an ad hoc group of term loan lenders on Oct. 9. The company says that as of Friday, the proposals represent the latest exchanged between the parties. The disclosures come on the heels of the company’s
previously reported decision to skip an unsecured notes interest payment due Oct. 15 and to use the 30-day grace period to continue negotiations with creditors in the hopes of reaching a consensual deal.
In broad strokes,
as reported previously, the company and lender proposals contemplate an equitization of the company’s notes through an $80 million rights offering backed by existing noteholders, an $80 million second lien facility in the form of new money or the subordination of the existing term loan, and a repayment of $80 million of the first lien term loan using cash proceeds from the rights offering. The proposals also both contemplate a refinancing of the company’s existing first lien term loan, which the materials indicate currently has a $481 million outstanding amount, into a $320 million first lien loan.
As
discussed previously, the lenders had indicated that they were seeking a restructuring that would get Bridal closer to 4x total leverage or less upon completion, which the restructurings proposed in the term sheets would achieve. The term lenders’ proposal reviews that the parties have contemplated existing noteholders Solace and/or Oaktree backing the approximately $80 million rights offering and Oaktree subordinating $80 million of its existing first lien term loan holdings into a second lien term loan.
The company proposal contemplates that rights offering pro forma ownership would total “[95% TBD]” and that existing bondholders’ pro forma ownership would total “[5% TBD].” The lender proposal contemplates that the notes will be exchanged on a pro rata basis in a private, unregistered exchange offer for new common stock but specifies that that “pro forma ownership is TBD.” As reported previously, the proposals contemplate no cash payment of interest on the company’s existing senior notes due Oct. 15 and thereafter.
As discussed further below, terms of the proposals differ on certain items including interest rates on refinanced debt and intercreditor terms.
The company’s disclosure states that on Sept. 25, term lender and majority noteholder Oaktree Capital Management submitted through its advisors a restructuring proposal to the company and certain stakeholders and that the company submitted its own term sheet proposal in response. As
reported, the company proposal followed discussions between Oaktree and the lenders and sought to bridge a gap between the creditors’ differing views on amenable restructuring terms. In addition to owning a majority of the company’s $270 million in 7.75% unsecured bonds due 2020, Oaktree, advised by Moelis & Co. and Paul Weiss, owns a blocking position in the company’s $492.1 million term loan due October 2019. A group of term lenders advised by Greenhill and Jones Day, David’s Bridal is advised by Evercore and Debevoise & Plimpton, and unsecured noteholder Solace Capital Partners is advised by Fried Frank. The company discloses that on Oct. 9, an ad hoc group of term lenders submitted a counterproposal to the company.
The company’s cleansing materials also include preliminary third-quarter results and financial projections (assuming a consensual restructuring) for the full year,
including a forecast 2018 full-year adjusted EBITDA of $75 million, compared with $82.7 million in fiscal 2017. Notably, the lender group’s proposal is conditioned on, among other things, trailing-12-month EBITDA being not less than $75 million as of the date of the last calendar month-end prior to the restructuring effective date. Third-quarter adjusted EBITDA is reported to total $13.4 million, compared with $19.9 million in the fiscal 2017 period, and the company’s materials disclose a 6.5% comparable-store sales decline for the quarter, comprising a 7% decline in brick-and-mortar stores and a 2.3% decline in e-commerce. This compares with a 2.6% comps improvement in the third quarter of fiscal 2017, comprising a 2.9% improvement in brick-and-mortar sales and relatively flat performance in e-commerce.
The company’s unsecured notes last traded in round lots on May 15 at 48.5, according to TRACE, and the term loan was quoted today at 89.5/90.5, flat to quotes on the date of the skipped interest payment, according to a trading desk.
Financial Projections
The company projects $721.4 million in full-year 2018 revenue, which would be down 2.2% year over year, and gross margin of 62%, down 81 bps year over year. Fiscal 2018 SG&A is forecast to total $372.6 million, down 2.2% year over year. Fourth-quarter adjusted EBITDA is projected to total negative $2.7 million, fairly
consistent with results reported for fiscal 2017. David’s Bridal projects “normalized” fiscal 2018 EBITDA of $79 million.
The company projects fourth-quarter comps of positive 1.8%, up from 1.5% in the prior-year period, comprising a 0.7% brick-and-mortar improvement and a 13.2% e-commerce improvement. As reported previously, David’s Bridal
acquired technology company Blueprint Registry in late August for an undisclosed amount. Full-year comps are projected to be down 1.2%, compared with a 1.6% decline in fiscal 2017, with brick-and-mortar comparable sales expected to decline 1.6% and e-commerce sales expected to improve 2.1%.
Bridal also provides certain plan numbers for fiscal 2019 in the cleansing materials, including a $33.5 million year-over-year revenue improvement in 2019 to $754.9 million, reflecting projected positive comps of 5%. The company projects total 2019 EBITDA of $80 million, comprising $2.9 million from Blueprint Registry, compared with a $0.3 million negative impact projected for fiscal 2018, and $77.1 million from the core business, up from $75.3 million in the core business projected for fiscal 2018.
Capital expenditures are projected to total $15.2 million in 2018, $16.5 million in 2019, $22.6 million in 2020 and $19.7 million in 2021.
Restructuring Proposals
David’s Bridal proposed a refinancing of the first lien term loan into a $320 million five-year term loan paying interest at L+650 bps. Terms include a 75% excess cash flow sweep for amounts above $10 million, subject to a stepdown to 50% if net first lien leverage drops below 3x and a stepdown to 25% if net first lien leverage is below 2x. The company proposed that the loan be secured by a first-priority security interest in all non-ABL priority collateral and a second-priority security interest in all ABL priority collateral plus a 65% equity pledge of foreign subsidiaries.
The company proposal contemplated a year one call protection at 101 and at par thereafter. The proposal contemplated no change to the ABL commitment size and a maturity no earlier than six months before the term loan maturity. The company also proposed a 12.5% PIK interest $80 million second lien term loan facility in the form of new money or subordination of the term loan to be backstopped by Oaktree or other existing bondholders and an $80 million equity rights offering to be backed by bondholders - potentially to be increased “if additional liquidity is required at closing.”
The lenders’ counterproposal provides for certain modifications to the company’s proposal and specifically contemplates that $66 million of the rights offering proceeds go to pay down term lenders other than Oaktree, with $14 million going toward Oaktree’s term loan holdings. The lenders also propose a maturity on the first lien term loan that is the earlier of four years from closing and Oct. 11, 2022. The lenders’ proposal contemplates different pricing than the company’s, proposing a $320 million first lien term loan paying interest at L+800 bps and an amendment fee of 100 bps (compared with an amendment fee of 50 bps proposed by the company). Default interest under the lender proposal is 4% compared with 2% under the company’s terms.
In addition to the security contemplated in the company proposal, the lenders also specify that collateral under the refinanced first lien term loan should be “subject to documentation and intercreditor arrangements acceptable to the Required Supporting Term Lenders,” defined as lenders holding at least a majority of term loan principal, excluding “Supporting ABL Lenders, the Supporting Noteholders and the Supporting Sponsors and their respective Affiliates.” The lenders also propose that the loan include a prohibition on the designation of unrestricted subsidiaries without required lender consent and prohibition on the incurrence of FILO indebtedness. The lender and company proposals both agree on a financial covenant setting total gross first lien leverage not to exceed 5.5x, with 0.25x annual stepdowns on the first anniversary and second anniversary of the effective date.
Conditions to the lender proposal include an amendment to the existing ABL facility that is satisfactory to the required supporting term lenders and, among other things, extends the maturity date to no earlier than six months prior to the proposed first lien term loan maturity date. The lenders’ conditions precedent also include, among other things, the company’s payment of lenders’ professional fees incurred in connection with negotiations, the company’s delivery of a business plan for 2019 through 2022, execution and delivery by Solace and/or Oaktree of an equity commitment agreement, and agreement to certain milestones including key dates during any potential chapter 11 cases. The lenders also proposed terms for the junior lien intercreditor agreement noted above, including terms setting limits on the second lien lenders’ rights in a chapter 11 scenario.
David’s Bridal and its private equity sponsor Clayton Dubilier & Rice did not respond to requests for comment.