Blackstone-Backed Service King Flags Cash Crunch, Ability to Pay Debt

(Bloomberg) -- Auto repair company Service King has warned its lenders that dwindling cash is casting doubt on its ability to pay debt and continue as a going concern, according to people familiar with the closely held company’s most recent results.

The Blackstone Inc. and Carlyle Group Inc.-backed company reported $31 million in cash as of the third quarter after it drew $72 million on its revolving credit facility and maxed out its borrowing availability, said the people, who asked not to be identified because the results were private. 

The company also entered into a sale-lease-back agreement with some of its real estate holdings that generated $66 million in gross proceeds, the people said.

Representatives from Service King and Carlyle didn’t immediately provide a comment. Blackstone declined to comment.

The auto collision repair company has seen its earnings drop as less drivers took to the road during the pandemic. It reported a loss of $6 million in adjusted earnings during the third quarter, more than the $5.4 million loss it reported in the same period a year ago and far from the $27 million gain the company reported in 2019, the people said.

Revenue came in at $265 million in the quarter ended Oct. 2, up 27% year-over-year but down roughly 18% from the same period in 2019, the people said.

Sluggish Rebound

Service King’s $375 million of 7.875% notes due October 2022 dipped to around 83 cents on the dollar in September but were quoted at par Wednesday, according to Trace data. 

The company has to reduce its bonds outstanding to below $135 million by July 1 to avoid triggering a call on its loan. The $775 million term loan due December 2025 is quoted at around 98 cents, according to Bloomberg data.

The results suggest a still sluggish rebound to pre-pandemic levels for the company and a loss of market share, the people said. Last quarter the company reported revenue slid 17% from 2019 levels.

A group of term loan holders formed with Gibson Dunn & Crutcher and Evercore Inc. ahead of the bond’s 2022 maturity, Bloomberg reported in September. Meanwhile, large bondholders have regrouped with lawyers at Paul Weiss Rifkind Wharton & Garrison, the people said.

Clearlake Capital Group and Chatham Asset Management each have amassed a sizable position in the company’s debt, the people said. Representatives at Clearlake and Paul Weiss did not respond to requests for comment. Chatham declined to comment.

Service King has roughly $1.3 billion in debt, including a $15 million term loan it recently entered into with its sponsors Blackstone and Carlyle, according to the people. It also has $75 million of restricted cash set aside for paying down the unsecured notes, they said. 

Management will hold a call with investors on Thursday to discuss the results, the people said.

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