Deluxe Entertainment Services Group Downgraded To 'CC' From ‘CCC-’ On Debt Exchange Plan; Outlook Negative

  • Deluxe Entertainment Services Group Inc.'s (Deluxe) announced that it has entered into a restructuring support agreement (RSA) with its term loan lenders that will reduce its debt load by more than half the current outstanding amount ($782 million due February 2020).
  • Under the proposed agreement, Deluxe will offer to exchange all of its existing term-loan debt for 100% of the reorganized company's common stock.
  • Concurrent with the RSA, the company will solicit its senior lenders to approve a pre-packaged plan of reorganization (Chapter 11 bankruptcy filing), which would be implemented if the exchange offer does not garner unanimous consent.
  • We are lowering our issuer credit rating on Deluxe to 'CC' from 'CCC-'. At the same time, we are lowering our issue-level ratings on the company's senior secured first-lien term loan to 'CC' from 'CCC-' and senior secured delayed-draw priming term loan to 'CCC+' from 'B-'. The recovery ratings are unchanged.
  • The negative outlook reflects the certainty of a distressed offer or a bankruptcy filing within the next six months.
NEW YORK (S&P Global Ratings) Sept. 10, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade reflects our expectation that we now view a distressed exchange or a default as a certainty within the next six months as determined by the terms of the RSA and the company's pre-packaged plan of reorganization as an alternative to the exchange. We do not expect the company to be able to generate sufficient funds to repay its asset-based lending (ABL) facility (unrated) when it comes due in November 2019, supporting our expectation that Deluxe will need to pursue one of the two options: a distressed exchange offer or a Chapter 11 bankruptcy filing.
The negative outlook reflects our view that we expect default to be a virtual certainty, regardless of the time to default.
We expect to lower the rating to 'SD' (selective default) or 'D' depending on whether Deluxe executes its exchange offer or will need to implement its pre-packaged plan of reorganization leading to a Chapter 11 bankruptcy filing, respectively.
We will review our upside scenario after the company has either completed its distressed exchange or emerged from a bankruptcy filing.
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