November 30, 2018 / 3:15 PM / 11 days ago

FULLBEAUTY’s low secondary prices suggest restructuring imminent

NEW YORK, Nov 30 (LPC) - The low secondary trading prices of loans for women’s plus-size clothing retailer FULLBEAUTY Brands Inc suggest the troubled company could restructure its debt before the end of the year, two sources familiar with the situation said.

FULLBEAUTY’s US$820m seven-year first-lien term loan B, issued in October 2015, was quoted at around 32 cents on the dollar on Wednesday, down from around 57 cents in May, a secondary trader said.

The company’s US$345m eight-year second-lien term loan, which has a second claim over assets, was seen at 3.5 and 6.5 cents, down from 26 cents in May, the trader said.

Private equity firm Apax Partners LLP purchased FULLBEAUTY in October 2015, but sales have shrunk and earnings have dropped dramatically amid competition from online giant Amazon and chains, including Walmart and Kohl’s, that have entered the plus-size clothing space.

The retailer’s distressed secondary trading profile coincides with its decision to skip an interest payment in November on its second-lien term loan despite having “sufficient liquidity” to make the payment, according to S&P Global Ratings.

The company’s credit rating was also cut to default from CCC earlier in November by S&P, citing FULLBEAUTY’s decision to not make the interest payment on its term loan and forbearance agreements with its asset-based and first-lien lenders.

Indebted companies can skip interest payments in a bid to enhance liquidity and present investors with a more viable proposal to restructure debt, according to Bob Schulz, a managing director with S&P.

“Falling market prices on (FULLBEAUTY’s) loans have been a concern,” said Olga Naumova, a primary credit analyst with S&P. “The lower it gets, the more incentive for a sponsor to exchange the debt below par.”

FULLBEAUTY’s move to defer interest payments comes as other indebted retailers, such as David’s Bridal and Sears Holdings, file for protection under Chapter 11 bankruptcy law.

The company has retained Kirkland & Ellis as legal counsel and PJT Partners as investment banker to help evaluate options for managing its debt load, it said on November 9.

A spokesperson for FULLBEAUTY declined to comment.

FULL TROUBLES

FULLBEAUTY raised US$1.165bn of term loans in October 2015 to back its buyout. Apax Partners bought the retailer, formerly known as OneStopPlusGroup, from Charlesbank Capital Partners and Webster Capital.

JP Morgan, Jefferies, Goldman Sachs and Deutsche Bank announced the buyout loan in August 2015, but investors were concerned about the amount of leverage being taken on by a company exposed to the tough retail sector at that time.

The arranging banks had to take losses to sell the two-part loan with deep discounts as a result. The first-lien loan was priced at 475bp over Libor with a discount of 93 cents on the dollar, and the second-lien paid 900bp over Libor with a discount of 87.

At the time of the buyout, Moody’s Investors Service put leverage at roughly 7.0 times Ebitda which was projected to fall to 6.0-6.5 times in the following years. However, Moody’s said that leverage had spiked to roughly 12 times in May. (Reporting by Aaron Weinman. Editing by Tessa Walsh and Michelle Sierra)

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