Service King adjusted EBITDA stays in positive territory with boost from add-backs

[Editor’s Note: This story has been updated since initial publication to include added reporting and context in the second-to-last paragraph regarding the company’s liquidity position after closing its December refinancing.]

Just a few months removed from its latest refinancing, Service King was able to post its second straight positive adjusted EBITDA quarter in 4Q20 – but only to the tune of USD 1m, according to two sources familiar with the matter. Supporting the figure is a heavy assortment of add-back adjustments beneath a revenue trend that endured a double-digit slide for the period, the sources added. 

The collision center operator booked USD 235m of revenue for 4Q20, down 27.6% from USD 325m in 4Q19, the sources said. Still, the USD 1m of positive EBITDA shows some signs of stabilization compared to the depths of last year’s quarantine environment when EBITDA fell to negative USD 29.1m in 2Q20, before popping up to USD 5.4m in 3Q20.

Some investors have taken a critical eye to the bottom line, with one of the sources noting that he is modeling adjusted EBITDA closer to negative USD 5m for the recent quarter after stripping out synergy and cost savings addbacks. 

For the full year 2020, the Blackstone- and Carlyle-owned Service King posted USD 162.5m of pro forma adjusted EBITDA, according to both sources. That annual figure, however, contains at least USD 132m of COVID-19-related addbacks. As such, both sources calculate 2020 EBITDA at around USD 6m, without giving the company credit for realignment savings, margin normalization, and the COVID-19 addbacks. 

Service King also booked USD 950m of revenue for 2020, the sources said. This compares to roughly USD 1.3bn in 2019, one of the sources added. 

Tuned up

In December 2020, the company priced a USD 775m term loan due 2025 at Libor+ 675bps with a 99 OID to refinance its existing term loan. The offering was upsized from USD 700m and priced tighter than initial talk.

The company pitched the new loan, a crucial refinancing of near-term debt, as a bridge to a 2021 earnings rebound when the negative effects of the pandemic should begin to wane, as reported.

The loan is quoted 102.125/102.813 today, in line with recent levels, according to Markit.

Service King’s USD 375m 7.875% senior unsecured notes due 2022 last traded in size at 98.75 to yield 8.771% on 23 March before the recent earnings report, according to MarketAxess. The notes changed hands in odd lots today at 98.53 to yield 8.953%.

Pro forma the deal, liquidity in December exceeded USD 200m, including a new undrawn USD 91m revolver. However, shortly thereafter, liquidity fell to roughly USD 150m, including USD 82m of revolver availability, as the result of a cash burn and management paying down outstanding revolver balances, one of the sources and an additional source added.

Service King declined to comment. Blackstone and Carlyle did not respond to requests for comment. 

2021 Debtwire

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