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PetSmart High Yield Debt Dips After Underwhelming 4Q Numbers

High yield debt backing PetSmart declined Thursday after the privately held issuer again rolled out underwhelming quarterly results.

For its fiscal fourth quarter, sources said PetSmart on Wednesday booked adjusted EBITDA of roughly $203 million on revenue of about $2.5 billion. One buysider noted that while the adjusted EBITDA performance for the period fell shy of Street expectations, earnings overall were buoyed by improved sales at Chewy.com.

PetSmart 5.875% first-lien notes due 2025 and 8.875% senior notes due 2025—both of which priced at par in May as part of a $2 billion offering backing the roughly $3.4 billion purchase of Chewy.com—fell by 2.75 points and 0.75 points, respectively, according to MarketAxess, to 70.5 and 56.25. The issuer’s 7.125% notes due 2023 lost 2.5 points, to 55.

Meanwhile, the issuer’s B term loan due March 2022 (L+300, 1% LIBOR floor) fell to quotes of 77.25–78.125, sources noted, indicating a decline on the day of roughly 2.5 points from Tuesday’s levels.

The company’s Chewy.com bonds first slipped into distressed territory in December on the heels of lackluster third-quarter results and a ratings downgrade by S&P Global Ratings. PetSmart reported third-quarter adjusted EBITDA of roughly $189 million in December, a performance that was also shy of expectations, according to sources. S&P Global Ratings on Dec. 19 lowered the issuer’s secured and unsecured bond ratings to CCC+ and CCC–, respectively, from B and CCC+, while maintaining a negative outlook.

PetSmart notes also tumbled in March on news of the departure of Ryan Cohen, the co-founder and CEO of Chewy.com, and again earlier this month in response to relatively weak comparable-store sales and a 15% quarterly decline in EBITDA at industry peer PetCo Holdings. — James Passeri

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