Service King EBITDA turns negative in 2Q20

Service King yesterday (27 July) reported a sharp decline in EBITDA and revenue for 2Q20, driven by impaired demand for its services thanks to shelter-in-place orders throughout the quarter, according to two sources familiar with the company. The company will host an investor call on Thursday (30 July) to discuss the results.  

The auto repair company generated EBITDA of negative USD 29.1m in the quarter compared to positive USD 13.9m in 2Q19. Including adjustments, that number improves to negative USD 8.6m, down from positive USD 19.7m the prior year. 

Revenue totaled USD 177.4m for the quarter, down 44.7% year-over-year from 2019.  

On an LTM basis, the company posted USD 61.2m of adjusted EBITDA. Factoring in volume margin normalization, labor savings and COVID-19 adjustments, the company generated USD 140m of pro forma LTM adjusted EBITDA.  

The pro forma figure takes into account USD 28.1m of labor savings and USD 49.8m of COVID-19 adjustments. In 1Q20, the company factored in USD 39m of labor savings and USD 2.4m of COVID-19 addbacks, as reported.  

On an unadjusted basis, leverage balloons to 11.7x through the first lien and 17.8x total through USD 1.09bn of total debt, the sources said.  

Giving credit for a total USD 78.8m of addbacks, the Blackstone and Carlyle-owned company’s leverage is 5.1x through the first lien and 7.8x total.  

As of 30 June, Service King had USD 111m of cash, USD 78.5m of which is restricted from the Axalta prebate. The issuer fully tapped its USD 100m revolver during 1Q after the start of the pandemic, as previously reported.  

During the quarter, the company burned USD 49m of cash, one of the sources added.  

Service King initially declined to make a 1 April coupon payment to its bondholders, but paid the obligation within the 30-day grace period. 

The company has hired PJT Partners and Kirkland and Ellis to assist on strategic alternatives, as reported. Meanwhile, an ad hoc group of lenders added Evercore and Gibson Dunn to their roster to prepare for potential negotiations. A bondholder group has also formed with Houlihan Lokey and Akin Gump.  

The USD 375m 7.875% senior unsecured notes due 2022 traded in size on 14 July at 81 to yield 18.75%, down from trades at 85 yielding 16.135% on the week prior, according to MarketAxess. The notes are quoted today in the 79.5/81 context today yielding 19.44% at the midpoint, according to a trader.  

The USD 600m Libor+ 275bps (1% floor) first lien term loan due 2021 is quoted in the 89.038/91.2 context today, down almost a point from trades at 89.875/92.028 at the beginning of the month, according to Markit. 

Service King did not respond to a request for comment. 

2020 Debtwire

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