Staples bonds ticked up after the company reported an EBITDA jump in its 3Q18 quarterly earnings report, according to two sources familiar with the matter.
The Sycamore Partners-owned retailer’s USD 1bn 8.5% senior unsecured notes due 2025 traded up as high as 93.75 to yield 9.78% on Friday (7 December) after the earnings report, up more than 4 points from 89.5 on 6 December, before settling down to last trade today at 91.75 to yield 10.215%, according to MarketAxess.
EBITDA edged up 26% to USD 243m from USD 193m year-over-year, while sales increased 5% to USD 2.574bn from USD 2.453bn in the corresponding period, the sources said. The company is on track to book an estimated USD 929m of EBITDA for fiscal year 2018 ending 31 January, according to one of the sources.
For 3Q18 ended 3 November, the company’s total debt balance stood at USD 4.064bn, the sources said. Based on roughly USD 854m of LTM EBITDA, Staples’ total leverage stands at 4.75x, while net leverage is around 4.3x net, the first source noted.
Staples ended the last quarter with a cash balance of USD 393m, but some debtholders expect that position to takes a drastic cut in fiscal 4Q18 on the back of an upcoming shareholder dividend, one of the sources said. The company’s revolver had USD 175m drawn on it at quarter end.
The capital structure was put in place to back Sycamore’s USD 6.9bn acquisition of the retailer’s commercial and delivery business in August 2017. The sponsor’s equity check amounted to 27% of the enterprise value. At the time of syndication, the LBO financing was being marketed at roughly USD 1.037bn in EBITDA, of which USD 237m consisted of pro forma cost savings.
The company and Sycamore declined to comment.