💥The "Golden Age.” Parts V & VI.💥
Pluralsight Inc. + Updates: 99 Cents Only Stores, rue21, Sam Ash.
⚡️Update: Number Holdings Inc. (a/k/a 99 Cents Only Stores)⚡️
Looks like a number of players jumped at the chance to pick up discount retainer 99 Cents Only on the cheap. Among them? Other big retail names like Ollie’s Bargain Outlet ($OLLI) and Dollar Tree Inc ($DLTR).
You’ll recall that, back on April 7-8, 2024, 99 Cents Only Stores LLC and five affiliates (the “debtors”) filed their chapter 11 bankruptcy cases in the District of Delaware (Judge Stickles) with intent to liquidate. Why? Sadly no prospective buyers responded to investment banker Jefferies Group LLC’s pre-petition marketing process in any way even remotely resembling going concern interest. We covered the filing here.
And so shortly after the filing, on April 16, 2024, the debtors slapped a bid procedures motion onto the docket. Judge Stickles granted certain of the relief requested therein on May 9, 2024 and established May 21, 2024 as the auction date for sale of the debtors’ assets. On May 15, 2024, the debtors designated OLLI as stalking horse bidder for the purchase of eight leasehold interests and three owned-properties in Texas for $14.6mm cash and OLLI ultimately ended up the successful purchaser — a result memorialized via a notice of successful bidder filed on May 22, 2024. Contemporaneously, the debtors filed a second notice indicating that DLTR won the designation rights to 170 leases in Texas, Arizona, Nevada and California at a cost of $12,885,000; DLTR also picked up the debtors’ North American intellectual property (for $115k) and select on-site furnishings (for ~$1.7mm).* Yes, those are astonishingly small figures.
But luckily there’s more! There were several other buyers for additional assets. At a sale hearing on May 23, 2024, Milbank LLP’s Andrew LeBlanc took a bit of a victory lap, underscoring that, in total, the debtors generated over $170mm in value through their in-court sales. Given how pathetic the sales to OLLI and DLTR were – $115k for the IP, LOL – the lion’s share of proceeds comes from the sale of 41 owned properties ($137.5mm). Great result!
Unless, that is, you're buried deep in the capital structure.
You’ll recall that, as of the petition date, the capital structure looked like this ⬇️:
The $25mm FILO was rolled up into the debtors’ $60.8mm DIP. You can see where this is going — ~$170mm in proceeds against $456.9mm of funded debt (ex-new money DIP) — those 26s are taking a bit of a … 🥁wait for it 🥁… discounted recovery.
🙄
*DLTR already indicated that it intends to turn these locations into Dollar Tree locations (which begs the question what, exactly, they intend to do with the IP … if anything). This will somewhat offset DLTR’s previous commitment to downsize its Family Dollar banner by 600 locations in the first half of ‘24 (with an additional 370 locations slated for closure in coming years as leases expire).
💩The "Golden Age.” Part V.💩
Something tells us we’re going to be up to Part C* in short order.
When we last visited with PA-based New rue21 Holdco, Inc. (“rue21”) and its five affiliates (collectively, the “debtors”) — all of which filed chapter 11 bankruptcy cases in the District of Delaware (Judge Shannon) back on May 2, 2024 — we noted how the proposed sale of the debtors’ IP assets wasn’t going so well. The debtors had a bid — from a company called YM Inc. (“YM”)** — totaling less than $5mm.
Now, look. Everything’s relative. And relative to the $115k IP sale in the 99 Cents Only Stores LLC case, $5mm looks like a massive win.
Except nobody gives a sh*t about that comparison. People do, however care about what that purchase price means in relation to the outstanding funded debt. Which was $164.7mm. So, no, not a massive win for anyone. Not by any stretch.
But wait! That was just the floor right? There was still hope for competing qualified bids to come flying through the door and, then, on the basis of multiple qualified bids, a robust auction for the assets!
Except no qualified bids came in for this steaming pile of dogsh*t.
And, therefore, no auction was necessary.
On May 29, 2024, the debtors filed a notice cancelling the auction and designating YM as the successful bidder. Two days later, Judge Shannon entered an order approving the sale to YM,*** cementing a disastrous result for private credit provider Blue Torch Capital as lender and equityholder.
THE. MOTHERF*CKING. GOLDEN. AGE. OF. PRIVATE. CREDIT. Y’ALL.
*That’s 100 for those of you shamefully unfamiliar with Roman numerals.
**YM is no stranger to distressed brands. Others in its portfolio including, among others, Charlotte Russe and Mandee were also bought out of bankruptcy.
***The sale closed on the same day. Goulston & Storrs PC (Douglas Rosner, Brendan Gage) and Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Matthew Talmo) represented YM in the transaction.
💩The "Golden Age.” Part VI.💩
THE. MOTHERF*CKING. GOLDEN. AGE. OF. PRIVATE. CREDIT. Y’ALL.
Back in April ‘21, Vista Equity Partners took Utah-based Pluralsight Inc. (“Pluralsight”), a then-publicly-traded “technology workforce development company,” private in an all-cash transaction valued at approximately $3.5b.* Interestingly, a significant slug of the debt used to finance the transaction came from the world of private credit. And by “significant,” we mean…
Here, from back in October ‘21, is an S&P Global Market Intelligence piece that highlighted the rise of private credit around that time:
Demand for "alternative" financial metrics is spurring interest in private credit at the expense of syndicated loans, according to research Wells Fargo published today.
An example is a loan based on a borrower's recurring revenue, as opposed to EBITDA.
"Aiding private credit in its ability to compete with syndicated markets is that it need not comply with the same regulatory regime as the banking industry. EBITDA adjustments can be too complex or stretched for rating agencies' comfort level, which is inhibitive to a syndicated solution," Wells Fargo analyst Finian O'Shea said in the research note.
"So it is not surprising that we see private credit trending toward alternative financial metrics, including recurring revenue, which has yet to make it into syndicated channels."
The poster child? Pluralsight! Here was more from S&P:
Wells Fargo cited the example of a $1 billion term loan to Pluralsight in the recent quarter. The debt features covenants based on recurring revenue through December 2023, switching to EBITDA-based covenants thereafter. Interest on the loan was L+800, with a 1% floor, "resulting in a 9% coupon in a market where bread-and-butter unitranche financings offered L+550 to 600," Wells Fargo said.
That’s quite a hefty interest rate differential. That’s quite a hefty interest rate! The L+ there is doing A LOT OF HEAVY LIFTING in a “higher for longer” interest rate environment. But, oh, the flexibility! S&P continued: