Apollo-controlled Affinion Group has met the required 98% participation threshold to proceed with its proposed recapitalization plan. In addition to reducing debt by $628 million and extending its maturity profile, the company also received consents to eliminate financial covenants under its indenture.
The restructuring proposal came after the marketing concern failed to make a $22.2 million interest payment due Feb. 19 on its first-lien term loan due May 10, 2022, entering instead into a forbearance agreement with its first-lien lenders through June 3.
If the transaction is not completed, Affinion has warned it could seek to restructure via Chapter 11, obtaining a $55 million debtor-in-possession term loan facility with HPS Investment Partners, Manchester Securities, and Zev Investments for this purpose.
The distressed exchange will swap about $700 million of principal of the company's 12.5%/pay-in-kind (PIK) 15.5% step-up notes due 2022, which were put in place as part of a 2017 restructuring, for equity in the company. Affinion also plans to issue $357 million of 18% PIK unsecured notes due 2024 (unrated) and use net proceeds of about $300 million to repay its full revolver borrowings of $108 million and pay down $153 million of the approximately $872 million outstanding on its first-lien term loan due 2022.
Pro forma for the repayment, $719 million of the term loan will remain outstanding, with the loan's maturity extended to 2024, from 2022. Additionally, as part of the transaction, the total commitment under the revolver will be reduced to $80 million, from $110 million, and the maturity extended to 2023, from 2022, according to S&P Global Ratings.
As of Dec. 31, Affinion had $84.7 million of cash and cash equivalents.
“We believe Affinion's decision to forgo its interest payment is strategic because it proposed a new recapitalization plan and negotiated with lenders to restructure the balance sheet, and not due to insufficient liquidity given cash on hand,” S&P credit analyst Elton Cerda said in a March 8 report.
Prior to the removal of financial covenants, the issuer was subject to a 6.75x senior secured leverage ratio governing the facility, scheduled to step down each quarter in 2019 to 6.38x, 6.25x, 6.00x, and 5.88x, respectively.
Affinion, a provider of loyalty and customer engagement solutions, placed the PIK toggle bonds in 2017 as part of a restructuring that swapped its existing unsecured notes in a deal said to be backstopped at the time by a significant portion of the company's existing senior unsecured lenders.
The loss of a key customer last year, however, is expected to result in a double-digit decline in revenue and EBITDA in 2019, according to a December report by S&P Global Ratings. S&P has since lowered its rating on Affinion, to SD, from CCC–, on account of the missed term loan payment. Moody’s lowered Affinion to Ca, from Caa3, and withdrew all ratings.