Dave & Buster’s Seeks Liquidity From $500 Million Junk Bond

(Bloomberg) -- Dave & Buster’s Entertainment Inc., the chain that features sports bars and arcade games, launched a junk bond sale Monday that would give the company more liquidity and provide relief from Covid-19 pressures.

The company is looking to borrow $500 million through the five-year secured note offering. Proceeds will repay a term loan and credit line, and be used for general corporate purposes.

As part of the transaction, the firm is suspending certain maintenance covenants through April 2022, adding a $150 million minimum liquidity covenant and extending the maturity of its revolving credit facility by two years to 2024, according to a news release. Upon closing, the company will have about $299 million in available liquidity.

Pandemic shutdowns sent revenue at the chain plunging, and it risked breaching the terms of a $500 million credit line. A waiver from lenders was set to expire Nov. 1, and the company has previously warned that it may need to file Chapter 11 to restructure its obligations. Dave & Buster’s has been showing improving sales in October.

The stock rose as much as 10.6% following the news of the planned bond sale, though it’s still down more than 50% for the year.

Early pricing discussions for the bond offering are in the mid-to-high 8% range, according to people familiar with the matter who asked not to be identified discussing a private transaction.

The notes will be secured by the same subsidiaries that guarantee its term loan and revolving credit facility. The deal, one of at least eight new high-yield bond offerings announced this week, is expected to price later Monday. JPMorgan Chase & Co. is leading the sale.

Costly Prospect

If Dave & Buster’s does end up needing to file for Chapter 11 in the future, its elevated levels of secured debt could make the process more complicated as more creditors battle over the same pool of assets, said James Silver, a bankruptcy lawyer and partner at Kelley Kronenberg in Fort Lauderdale, Florida.

“If you’re piling on all this secured debt and paying a high interest rate on it, it could make for a more difficult bankruptcy down the road,” Silver said.

A representative for Dave & Buster’s didn’t immediately respond to a request for comment.

Though the new deal will give Dave & Buster’s breathing room, the company is still facing potential months of lower revenues as states across the country continue to deal with spikes in Covid-19 cases.

“Some of these indoor entertainment venue chains are funding losses with high-cost debt such that their enterprise values in a post-Covid world may not clear their bloated debt load,” said Philip Brendel, a distressed credit analyst with Bloomberg Intelligence. “Barring Herculean turnarounds, they may just be Chapter 11 filers in ‘21 or ‘22.”

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