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US High Yield Funds See Massive $4.4 Billion Cash Withdrawal

Churchill Downs announces $400M of eight-year notes for debt refi

Judge dismisses Marble Ridge claims over Neiman's MyTheresa transfer

Affinion receives consents for recap, covenant elimination

Revlon delays annual 10-K, details liquidity, ERP-related losses


US High Yield Funds See Massive $4.4 Billion Cash Withdrawal

US high yield fund flows

U.S. high-yield funds recorded an outflow of $4.4 billion for the week ended Nov. 15, according to weekly reporters to Lipper only.

Mutual funds made up the bulk of this week’s outflow, at $2.6 billion, while $1.8 billion exited ETFs.

The year-to-date total outflow is now roughly $13 billion, with a $14.7 billion outflow from mutual funds outweighing a roughly $1.7 billion inflow to ETFs.

The four-week trailing average is in the red for the third straight week, widening to negative $1.5 billion from negative $536 million last week.

The change due to market conditions this past week was a decrease of $1.9 billion. Total assets at the end of the observation period were $206.6 billion. ETFs account for about 24% of the total, at roughly $50 billion. — James Passeri

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Churchill Downs announces $400M of eight-year notes for debt refi

Churchill Downs (Nasdaq: CHDN) is in the market with a $400 million offering of eight-year (non-call three) notes, sources said. An investor call for the J.P. Morgan–led deal is scheduled for today at 11 a.m. EDT.

Proceeds will be used to repay existing debt. Existing unsecured debt ratings are B+/Ba3. Additional bookrunners for the 144A-for-life offering are PNC, U.S. Bank, Fifth Third, and Wells Fargo.

Churchill Downs last accessed the bond markets in December 2017, placing $500 million of 4.75% notes due 2028. Trade data show the notes closed the session yesterday at 95.75, to yield 5.36%.

The issuer’s long-term debt also includes a $400 million B term loan due 2024 (L+200, 0% LIBOR floor).

The company in February reported fourth-quarter and full-year results, citing a 22% increase in net revenue for fourth-quarter 2018, at $219 million. Full-year revenue was roughly $1 billion, up 14% over the prior year.

Louisville, Ky.–based Churchill Downs operates as a racing, gaming, and online entertainment company in the U.S.



Judge dismisses Marble Ridge claims over Neiman's MyTheresa transfer

The judge overseeing a lawsuit against Neiman Marcus Group has dismissed claims made by distressed hedge fund Marble Ridge that the retailer’s transfer of its MyTheresa asset to a subsidiary outside of creditors’ reach violated the terms of its indenture.

Judge Tonya Parker cited a “lack of subject matter jurisdiction,” according to a court document filed in Dallas, siding with Neiman's argument that Marble Ridge lacked standing to assert their claim.

“[Marble Ridge] Master Fund is not a creditor of Neiman Marcus based on its alleged holdings of term loans because it is not a lender under Neiman Marcus’ Term Loan Agreement,” Neiman counsel Mike Lynn of Lynn Pinker Cox Hurst argued in the defendants plea to the jurisdiction in December.

To prove an action for fraudulent transfer, Master Fund must be a creditor, the defendants argued. “Marble Ridge Plaintiffs lack standing to bring the claims asserted in their original petition,” Lynn said.

The order dismisses all of Marble Ridge’s complaints without prejudice.

“From the beginning, we have said Marble Ridge’s lawsuit lacked merit. We are pleased that the Court has fully vindicated our position and dismissed all of Marble Ridge’s claims with prejudice,” Neiman Marcus said in an emailed statement to LCD.

The Dallas-based retailer is currently in talks with creditors on an out-of-court restructuring that would give the company a three-year runway on its term loans and unsecured notes to implement its turnaround plan. While the deal would return an equity stake in the luxury fashion brand MyTheresa, 50% would remain out of the reach of creditors in case of a default, Marble Ridge argued.

For further coverage of the proposed restructuring see “Marble Ridge says Neiman Marcus revamp a 'devil's bargain'," LCD News, March 4, 2018, and “Neiman Marcus restructuring sees MyTheresa stake for noteholders," LCD News, March 1, 2019.

The case is Marble Ridge Capital LP v. Neiman Marcus Group Inc., DC-18-18371, in the District Court of Dallas County, Texas. A hearing on Neiman Marcus Group's defamation case against Marble Ridge is still scheduled for 9 a.m. on March 21.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.



Affinion receives consents for recap, covenant elimination

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.



Revlon delays annual 10-K, details liquidity, ERP-related losses

Revlon, Inc. has delayed the filing of its annual 10-K report for the fiscal year ended Dec. 31, 2018, saying it has identified a material weakness in its internal financial reporting related to the implementation of its enterprise resource planning (ERP) system in the U.S.

In addition to the company’s dwindling liquidity position, service level disruptions at its Oxford, N.C. manufacturing facility following the February 2018 implementation of the new ERP system have been a key concern for investors in light of the impact on the company's ability to manufacture and fulfill shipments to U.S and international retail customers.

According to preliminary numbers released by Revlon, net sales fell 4.8% to $2.56 billion for the full-year 2018. The company said the performance reflects a net sales reduction of $64 million related to the previously referenced service level disruptions stemming from the ERP system implementation.

Operating losses widened to $85.2 million in 2018, from $23.8 million in 2017, again, driven primarily by lower net sales and costs associated with remediating the SAP disruption at its North Carolina manufacturing facility, as well as a $20.1 million loss related to reacquiring certain iconic Elizabeth Arden trademark rights.

Revlon's net loss came in at $294 million for 2018, compared to a net loss of $183.2 million last year.

The unaudited results showed adjusted EBITDA of $237.9 million for the year, compared to $257.3 million in 2017.

Revlon said the assessment of its internal controls over financial reporting for 2018 is not expected to result in any changes to the disclosed financial results.

In terms of liquidity, the company’s liquidity position had fallen to $118 million as of Feb. 28, from $160 million at year-end 2018. Its current liquidity consists of $75 million of unrestricted cash and cash equivalents, as well as approximately $50 million in available borrowing capacity under its revolving credit facility, less float of $7 million. As of Dec. 31, Revlon had $87.3 million of unrestricted cash and cash equivalents, as well as $96.4 million in available borrowing capacity under the revolving credit facility (which had $335 million drawn at the time), less float of $23.4 million.

Revlon bonds were in the red ahead of the filing, but losses deepened post the aftermarket disclosure. Revlon Consumer Products 5.75% notes due 2021 (CCC/Caa3) traded in clips at 84, down roughly 2.5 points on the day. The notes started the year at 75, before trading up alongside the broad-market rally to peak levels this month on either side of 87.

Revlon earlier this month entered into an amendment to its asset-based revolving credit agreement to extend the maturity date applicable to the $41.5 million senior secured FILO tranche to April 2020, from April 2019. The fully-drawn FILO tranche was placed in April last year to provide for the additional first-in/last-out tranche commitment under its ABL revolver. See “Revlon TL gains on new FILO "liquidity comfort", LCD News, April 20, 2018.

Revlon manufactures, markets, distributes, and sells beauty and personal care products. Corporate issuer ratings are CCC+/Caa1.

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