PetSmart Makes a Second Offer to Lenders to Amend Loan

(Bloomberg) -- PetSmart Inc. tried a second time to amend its agreement with lenders as it seeks to quell investor concerns over a disputed asset transfer, according to people with knowledge of the matter.

The pet superstore made a revised offer on Tuesday to reimburse senior lenders if it monetizes a 20 percent equity stake of its Chewy.com unit that it had moved. PetSmart also sweetened its initial offer by improving the consent margin and committing that 100 percent of future sales of any PetSmart asset would be used to repay consenting lenders. That’s up from the previous 50 percent pledge, said the people, who asked not to be identified discussing a private situation.

Representatives from PetSmart and its private equity sponsor declined to comment. Lenders have until Wednesday night to decide whether they approve of the change. The company could also accelerate that deadline if it passes a 51 percent holder consent threshold, the people said.

PetSmart’s $4.2 billion loan due 2022 climbed as much as 3 cents on the dollar to around 93, according to people familiar with the trading. Company unsecured notes due 2023 and 2025 were among the top performers in the U.S. high-yield market, rising nearly three cents on the dollar, according to Trace bond data.

The retailer’s original proposal to amend its loan documents launched last week failed to garner enough support to pass the minimum 51 percent consent threshold, Bloomberg reported. PetSmart’s offer to provide protection against future actions by the company if existing lenders drop the litigation was not enough to convince a group of investors who told the loan’s administrative agent they wouldn’t consent.

The company spoke with lenders last week to gather feedback on the original proposal. Based on that process, PetSmart launched the new offer to address the holders main points of concern, the people said.

Phoenix-based PetSmart is entangled in a dispute between its lenders and private-equity owners -- a group led by BC Partners -- after it moved the stake in Chewy.com to a parent company and another 16.5 percent to an unrestricted subsidiary. Lenders are claiming that PetSmart was insolvent at the time of the transfer and consider it a fraudulent maneuver. The company has pegged the value of the Chewy unit at $4.45 billion, excluding cash on the balance sheet.

To contact the reporter on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nikolaj Gammeltoft, Dan Wilchins

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