Shutterfly disclosed that it made a USD 100m prepayment of its term loans this week, according to two sources familiar with the matter. The company also provided positive flash 4Q19 results, initially sending its bonds up five points to trade over par, they said.

The 4Q numbers represent the lion’s share of Shutterfly’s annual performance, since the holiday season is prime buying time for Shutterfly’s personalized photo-related products. As such, the year-over-year EBITDA growth that Shutterfly disclosed helped provide a shot in the arm to the company’s USD 750m 8.5% senior secured notes due 2026, which had traded in the mid-90s ever since issuance last September at a 94.371 OID.

The notes changed hands yesterday at 101 to yield 8.231%, from a print at 95.75 to yield 9.374% before the disclosure, according to MarketAxess. Trades today retraced to 99.5 yielding 8.598%.

The bonds were placed as part of a financing package backing an LBO by Apollo Management. The company faced a difficult syndication process, including several rounds of revisions and a postponement, before Apollo bought USD 300m of the bonds and the underwriters carved out a separate pro-rata tranche to hold on to for six months.

The loan facility contained a provision requiring a USD 100m paydown if the company’s cash balance at year-end totaled USD 350m or less. The paydown was applied across both the underwriter and institutional tranches.

As of 31 December, the company had USD 341m of cash, one of the sources said. The figure drops down to USD 241m after the paydown. Liquidity pro forma the paydown stands at USD 541m including an undrawn revolver.

The company also bought back USD 35m of its secured bonds during the quarter, as previously reported.

Including the recently completed Snapfish acquisition, Shutterfly generated USD 373m of combined EBITDA for full-year 2019, up 13% year-over-year. The company expects USD 58m more of cost savings, leading to USD 431m of pro forma LTM EBITDA, the sources said.

On a quarterly basis, the company generated USD 366m of combined 4Q EBITDA, compared to USD 338m in the prior year, one of the sources added. In comparison, Shutterfly’s 3Q19 EBITDA was negative USD 46m, compared to negative USD 26m in the prior-year period, as reported.

Pro forma the paydown, the company is levered 3.3x through the term loans and 5.3x total, based on USD 373m of combined LTM EBITDA, USD 1.23bn in senior debt and USD 1.98bn of total debt, a source said.

Shutterfly will report full financials in March and host a call on 26 March.

The Libor+ 600bps institutional tranche – USD 775m at issuance – was last quoted in the 97.583/99.25 context, up from 95.938/96.938 earlier this week, according to Markit. The loan was issued at a 95 OID.

Apollo and Shutterfly did not respond to requests for comment.

2020 Debtwire