Moody's warns on Invited conversion

Moody's Investors Service said it considers the completion of Invited Inc.’s (ClubCorp Holdings, Inc.) planned note exchange offer as a distressed exchange default.

Invited proposes to exchange its $425 million of 8˝% senior notes, rated Caa3, due September 2025 into new second lien 8˝% pay-in-kind notes due September 2026. If the exchange is completed, Moody's will append the /LD designation to the company's Caa1- PD probability of default rating, which would reflect a limited default within the company's capital structure.

Invited also announced an exchange offer for its first-lien term loan that has $1.105 billion outstanding and is due next September. The new maturity of any exchanged term loans will be September 2026. In exchange for extending the maturity by two years, the company is offering to raise the interest rate spread to 500 basis points, a consent fee in the form of a 3.5% increase in the principal of any exchanged term loans, and pro rata share of a $44 million pay down of the term loan. The covenants would also be tightened. The exchange is subject to holders of at least 95% of the term loan agreeing to the exchange though the company has the right to waive this condition.

“Moody's views the senior notes exchange transaction as a distressed exchange because the conversion of the interest to pay-in-kind represents an economic loss to the noteholders. Invited's ability to pay the higher interest being offered to extending first lien term loan lenders, keep the interest portion of the 8.5% senior notes as cash pay, and fund investments and other operating needs is questionable. The proposed transactions reduce some of the refinancing risk and would not fully alleviate the pressure from Invited's heavy $1.65 billion funded debt burden, high debt-to-EBITDA leverage exceeding 9x, and negative free cash flow resulting from the high-interest expense and capital expenditure needs,” the agency said in a press release.

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