Service King withholds coupon payment on unsecured notes, as collision repair volumes shrivel

Service King opted to not make a coupon payment due to holders of its USD 375m 7.875% notes due 2022 earlier this month, entering into a 30-day grace period, according to three sources familiar with the matter.

The Blackstone and Carlyle-owned company, which operates automotive collision repair centers, told investors yesterday that it intends to pay the coupon before the grace period ends on 1 May, two of the sources added.

Collision repair is one of many industries dealing with the ripple effect of the social distancing mandates and government orders for closure of non-essential businesses, which have led to lower volumes of car travel and thus fewer accidents.

Service King CEO David Cush announced at the end of March that the company intends to furlough a chunk of its workforce, expected to last roughly four to six months, depending on how quickly the business rebounds. Cush also said that he will not be taking a salary during this time and his executive team will take pay cuts.

Also, as part of the company’s cost-cutting initiatives, some of the Service King locations could be converted to drop-off facilities.

Service King’s 7.875% notes fell 12 points today, trading at 60 this morning compared to 72.375 yesterday, according to MarketAxess. The bonds sit behind a USD 600m Libor+ 275bps first lien term loan due 2021, which is quoted today in the 83.225/86.725 context compared to 81/85 at the end of last week, according to Markit.

Both Standard and Poor’s and Moody’s downgraded Service King on 24 March by one notch to Caa1/CCC+, each citing refinancing risk in connection with the 2021 loan maturity. S&P said the downgrade is also the result of the company’s recent weaker operating performance and the likely impact of the COVID-19 pandemic.

As of 31 December, the company had USD 80.4m in cash, sources said. Subsequently in late March, the company disclosed that it had drawn the remaining USD 91.75m on its revolver, tapping it completely, they added.

As of 31 December, the company generated USD 60m in free cash flow, based on USD 140m of run-rate EBITDA, USD 20m in capex and USD 60m of interest expense, one of the sources said.

Moody’s estimated that Service King’s leverage was around 8x as of year-end, according to a 30 March credit opinion.

Service King didn’t respond to inquiries seeking comment.

2020 Debtwire

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