Distressed Retailer Party City May Cut Debt With Bond Deal

(Bloomberg) -- Party City Holdco Inc., the retailer that has been trying to reduce its $2 billion debt load as social distancing scraps celebrations, will try to convince creditors to sign a deal that would trim its borrowings and inject fresh cash into the company.

The company reached an agreement with holders of more than 52% of its bonds that would give them a mix of equity in the business and new notes, according to a Party City statement Friday. The deal would still need the approval of 98% of its bondholders before completion.

“The agreement announced today demonstrates the confidence of certain of our bondholders in our strategy and leadership team, and we appreciate their support for our long-term success,” Chief Executive Officer Brad Weston said in the statement.

Party City has been working with restructuring experts from AlixPartners LLP to cut debt after poor Halloween sales and last year’s helium shortage, which cut into balloon sales. The Covid-19 pandemic hit the company in two ways: shutdowns across the country closed its retail outlets and prohibitions against gatherings may have cut demand for its products.

The company owns some of its stores and franchises others. Earlier this week, a group of stores owned by a Party City franchisee in North Carolina filed bankruptcy, blaming the pandemic-related shutdown of businesses. No Party City owned store has filed bankruptcy, the company said.

The company did not say what would happen if it misses the 98% threshold, according to an email response to questions. “Party City has no plans to file for bankruptcy at this time, and the agreement with certain of the company’s bondholders does not contemplate a bankruptcy filing,” the company said.

The chain found a niche when it first opened in 1986, with its vast repositories of disco balls, streamers and Santa hats. But its goods are now available online and at mass merchant competitors. Still, it is bolstered by its wholesale business.

In March, it said it was suspending its 2020 guidance as it shuttered stores amid the virus. It had a loss of $533 million last year.

The deal, which the company said would cut its debt by about $450 million and raise $100 million of new capital, was struck with some holders of the company’s 6.125% notes due in 2023 and its 6.625% bonds due 2026. Bondholders would get:

• Shares of Party City representing nearly 20% of outstanding common stock
• About $100 million of new second-lien 10% notes due in 2026 that would be issued by a newly formed subsidiary
• $185.0 million of variable rate senior secured notes due 2025 to be issued by the parent company

The company is also launching a rights offering and private placement that in all would raise about $100 million of new capital from the sale of 15% notes due 2025. That includes a private transaction with Barings to purchase $40 million of the first-lien notes.

After the announcement, shares of Party City soared 78% to $1.82 in pre-market trading Friday before retreating to $1.44 at 11:21 a.m.

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