Staples is preparing an over US$4bn funding package as the office supply distributor carries out a broad liability-management exercise to push out looming debt maturities and ease concerns over refinancing risks.
The announcement of a US$2.35bn 5.25 non-call 2.25 bond this morning came after the borrower launched a US$1.8bn covenant-lite term loan B last week that is being talked at 500bp–525bp over SOFR.
Staples is also using an asset-based loan facility, cash on hand, junior lien debt and proceeds from the sale of print services unit DEX Imaging to refinance debt, according to an investor presentation.
The company is offering holders of its 10.75% 2027s the option to swap their bonds for a new 12.75% junior lien secured note due 2030. Investors can exchange their bonds on a par-for-par basis or receive a mix of cash and bonds.
Staples was last in the bond market in 2019 when it sold US$1bn of the unsecured 2027s, along with US$2bn of secured 7.5% 2026s, according to IFR data.
Proceeds from that deal financed a US$1bn dividend to private equity owner Sycamore Partners just 18 months after the business was taken private in a US$6.9bn buyout.
The dividend helped Sycamore recoup almost two thirds of its initial US$1.6bn equity investment in the business, but the deal saddled the company with US$1bn more debt.
Staples is stepping into a very different environment on this occasion as markets recover from recent rate hikes and assess the timing of the Federal Reserve’s next rate move. But the backdrop has largely been receptive to refinancing forays, which have dominated the new issue market this year.
And rating agencies have taken a slightly more favorable stance on Staples, although that is largely predicated on the success of this latest multi-billion refinancing of loans and bonds that come due over the next two years.
Revised outlook
Earlier this month, S&P revised its outlook on the company’s B- rating to stable from negative after downgrading it a notch from B in September last year on concerns over the sustainability of its capital structure.
“We believe Staples will successfully refinance its upcoming maturities because of improving market sentiments, debt repayment plans, and better performance,” S&P said. “We expect the proposed refinancing will extend the company's weighted-average maturity and strengthen liquidity.”
The dollar price on the 2026s climbed from 93.25 on January 4 to as high as 99.80 late last week, while the 2027s were changing hands last week at 89.75, up from 73 on January 2, according to MarketAxess data.
Last week, Moody’s also changed its outlook on Staples to stable from negative and affirmed its B3 rating.
The company has been focusing on business-to-business services and shifted away from bricks-and-mortar store sales since the Sycamore acquisition.
While demand from corporate clients has been weaker due to the slow return to in-office work, the company has seen profits grow thanks to cost cuts and the streamlining of operations, Moody’s said.
That has helped credit metrics, although the rating agency expects its debt-to-Ebitda ratio to remain weak at around six times.
“Staples' rating also reflects financial strategy risks inherent in a sponsor-owned company, including the potential for leveraging extractions of equity,” Moody’s said.
JP Morgan is left lead on the new bond, while Morgan Stanley is lead arranger on the new term loan B. Loan commitments are due May 22 and the bond is expected to be priced on Thursday.