[Editor’s note: This updates a previous Debtwire report to include new information in the fourth paragraph on the company’s retention of a financial advisor.]
Clearlake Capital, which has a significant stake in Service King bonds, has hired Houlihan Lokey as financial advisor to address the collision center’s balance sheet, according to three sources familiar with the situation.
Clearlake is also working with Paul Weiss as legal counsel, as reported. Meanwhile, an ad hoc term loan lender group, advised by legal counsel Gibson Dunn, has started to interview advisors, said the first source and a fourth source.
The mobilization comes as liquidity emerges as a pressure point.
The company has also reengaged PJT Partners to scope out balance sheet options, said the first source and a fifth source familiar.
To conserve cash, the borrower last week announced plans to exercise the PIK toggle option for the 22 September interest payment due on its term loan, as reported. In tandem with the disclosure, the company also said it will draw down the remaining USD 22m of availability under its revolver.
The loan payment is roughly USD 15m, half of which can be PIKed. In addition, the company has a USD 14.8m interest payment on its 7.875% bond due 1 October.
Service King ended 2Q with USD 71.8m in liquidity through USD 19.8m of cash and USD 52m of revolver availability, as reported. Subsequent to quarter-end, the company drew an additional USD 20m from its revolver, bringing liquidity down to USD 51.8m. Now the company has fully drawn the facility.
Adding to balance sheet angst, there is also a minimum liquidity test of USD 35m that governs its revolver.
On an LTM basis through 2Q21, the issuer recorded unadjusted EBITDA of negative USD 15.1m. Including adjustments, the LTM figure totaled USD 5.5m, while pro forma further adjustments EBITDA, without a cap on addbacks — including USD 124.2m of COVID-related adjustments — amounted to USD 130.6m. Including the cap on adjustments, pro forma adjusted EBITDA came in at USD 22.7m, as reported.
Following the draw, leverage stands at 9.3x, through the USD 1.218bn of total debt and USD 130.6m of LTM 30 June adjusted EBITDA without a cap. Including a cap on adjustments, leverage totals 53.7x through USD 22.7m of adjusted EBITDA.
The borrower’s loan was quoted 95/96 as of yesterday, compared to a 91/93 context on 20 August and a 94.938/95.938 level pre-earnings, according to a buysider.
Its USD 375m 7.875% senior unsecured notes due 2022 traded at 83.5 to yield 27.674% this morning, down from 94 to yield 14.335% on 16 September and versus an 83 context on 17 August, according to MarketAxess.
Messages left with Service King, Houlihan Lokey and Clearlake Capital were not returned. A representative with PJT declined comment.