Service King included going concern language in its 3Q20 earnings report as a warning tied to the upcoming maturities of its revolver and term loans, according to two sources familiar with the matter. The collision center operator’s revolver could come due in May 2021 if it does not address its term loan due August 2021 by then, the sources said.
On today’s earnings call, management disclosed that they are working with sponsors Blackstone and Carlyle and lenders to address the loan maturity, one of the sources noted. The call did not include a Q&A session for the third consecutive quarter, the source continued.
Liquidity tightened at quarter-end, given USD 94.5m in cash balance and no availability under the USD 100m revolver, the sources said.
The company initially withheld its 1 April interest payment due on its unsecured notes, though it ultimately made the payment within the 30-day grace period. Following that, it made a coupon payment due 1 October to holders of its unsecured notes.
Earnings-wise, the company’s 3Q net sales slumped 35% year-over-year to USD 208.2m. Its unadjusted EBITDA came in at negative USD 916,000, while adjusted EBITDA totaled USD 5.4m at quarter-end.
On an LTM basis, the company posted negative USD 16.9m of unadjusted EBITDA. Adding in some of the adjustments, the company’s adjusted EBITDA figure rises to USD 39.7m.
Factoring in USD 23.2m of cost and labor savings and USD 89.5m of COVID-19 adjustments, Service King generated USD 153.6m of pro forma adjusted EBITDA.
The adjusted EBITDA figure put LTM leverage at nearly 18x through USD 713m of first lien debt, and 27.4x through USD 1.09bn of total debt. The first lien and total leverage metrics fall to 4.6x, and 7.1x, respectively, when considering USD 113.9m of total add-backs.
The company burned USD 94.3m of cash for the nine months through 30 September, based on negative USD 82m of cash from operations and USD 12.3m of capital expenditures.
Given its cash-flow pressures and bloated leverage, Service King is seen as likely to pursue a global refinancing or restructuring.
The company has been working with PJT Partners and Kirkland and Ellis to explore 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.
Clearlake Capital owns a significant majority of the company’s outstanding bonds, as reported by Debtwire.
The USD 375m 7.875% senior unsecured notes due 2022 last traded in size at 82.5 today, up from recent trades as low as 77.75 in August, according to MarketAxess. The notes last traded in odd lots at 83.417 on 30 October.
The USD 613m Libor+ 275bps (1% floor) first lien term loan due 2021 is quoted in the 94.5/96.354 context today, up slightly from trades in 93.972/95.778 context last week, according to Markit.
Service King did not respond to a request for comment. Carlyle and Blackstone did not respond to requests for comment.