Eaton Vance, Invesco Take On Crossmark From Warburg in Debt Swap
(Bloomberg) -- Crossmark Holdings Inc., the sales and marketing company owned by Warburg Pincus LLC, completed a deal with creditors that cuts debt by 75% and hands the keys to lenders including affiliates of Eaton Vance Corp. and Invesco Ltd.
The out-of-court debt exchange reduces leverage and was accepted by all of the company’s lenders, according to a statement. The biggest portion of the deal swapped $400 million of Crossmark’s first-lien term loan for $75 million of new debt and an initial 100% equity stake.
Crossmark’s statement didn’t name the new owners, but people with knowledge of the matter said the group included Eaton Vance and Invesco. The people asked not to be identified discussing a private transaction.
Creditors also exchanged $90 million of existing second-lien loans for warrants that would entitle holders to a 7.5% equity stake in the future.
Additionally, Crossmark got a new $75 million credit facility to provide working capital and letters of credit to finance operations.
The agreement emerged from months of negotiations between the company and a lender group that included Eaton Vance and Invesco, the people said.
The role of the sales and marketing agent has evolved over the years and “the entire industry has become over-levered” as private equity firms took ownership, Chief Executive Officer Steve Schuckenbrock said in an interview. “The company was strapped with a highly levered balance sheet, which was a huge question mark for our clients and customers.”
“It’s true for us and it’s true for our competitors,” Schuckenbrock said in the interview. The debt swap gives Crossmark the strongest balance sheet among its national peers, according to the statement.
Representatives for Crossmark, based in Plano, Texas, and New York-based Warburg Pincus declined to comment on the deal itself. Eaton Vance and Invesco didn’t return messages seeking comment.
Crossmark provides sales and marketing services for consumer brands, manufacturers and retailers. The company and its rivals, including Acosta Inc. and Advantage Solutions Inc., are the brands behind the brands on the shelves of retailers like Walmart, Target and Kroger. They make sure major retailers carry their clients’ products and display them well, and sometimes coordinate with the brands on product promotions.
The sector has come under pressure as brands and retailers cut back on marketing expenses. Catalina Marketing Corp., historically known for its long ribbons of cash-register coupons, filed for bankruptcy in December to clean up its debt-plagued balance sheet; it’s shifting to focus on digital apps and consumer data.
As retail margins shrink and rivals consolidate, Crossmark’s outlook has dimmed. Moody’s Investors Service downgraded the company’s credit rating in April to Ca from Caa3 after Crossmark missed an interest payment on its second-lien loan. The approximately half-billion dollars of debt on Crossmark’s balance sheet had been a heavy burden for a company of its size. That, combined with stagnant earnings had strained its liquidity, Moody’s said.
Crossmark’s leaner balance sheet allows the company to focus on building out its data and analytic tools, Schuckenbrock said. “In today’s world with all the information that’s available, we standardized the process” to better understand clients needs, he said.
The company is being advised by law firm Cleary Gottlieb Steen & Hamilton LLP, and investment bank Moelis & Co, the people said. Law firm Jones Day is representing the group of lenders.
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