Affinion’s strategic plan ‘on track,’ says CEO; company ends 2014 with $2.3 billion of debt

By Lisa Kerner

Charlotte, N.C., March 19 – Affinion Group Holdings, Inc. took several steps in 2014 to position itself for long-term success, said chief executive officer Todd Siegel during the company’s fourth-quarter and full-year 2014 earnings call on Thursday.

Siegel highlighted several of these steps, including investing in the Global Loyalty business, completing an acquisition in the Loyalty segment and adding three new product offerings in Affinion’s Insurance business.

Affinion also restructured its capital structure, “pushing out the remainder of our meaningful debt maturities to 2018,” Siegel said.

The company expects to be on “an overall growth trajectory” at the end of 2015 and into 2016.

However, Siegel noted the possible loss of a top-five customer, which would impact Affinion’s Loyalty business.

“As we look to 2015, there are many factors in play, including expansion opportunities in International, strong macro trends in (Group) Loyalty and a more stable Insurance business, offset by foreign currency risk and some weakness in our Membership business,” said the CEO.

Siegel said he is confident Affinion’s core business is “headed in the right direction” and that its long-term strategic plan remains “on track.”

Cash and debt

Affinion ended the year on Dec. 31 with debt, net of unrestricted cash, of $2.3 billion, $32.3 million of cash on the balance sheet and $5 million drawn on its revolver, said chief financial officer Greg Miller on the call.

At Dec. 31, the company had $211.3 million outstanding under its senior secured PIK/toggle notes due in 2018 and $32.2 million outstanding under its senior notes due in 2015, according to the earnings news release.

Affinion Group, Inc. had several debt instruments outstanding, including senior notes, senior subordinated notes and senior secured credit facilities, which consist of first-lien and second-lien term loan facilities and a revolving credit facility, the release stated.

At year-end, the group had $769.2 million of first-lien term loans outstanding, $425 million of second-lien term loans outstanding, $473.3 million outstanding under its senior notes due in 2018, $2.6 million outstanding under its senior subordinated notes due in 2015 and $353.3 million outstanding under the Affinion Investments LLC senior subordinated notes due in 2018.

Taking into account the $5 million of outstanding borrowings under its revolver, $61.7 million of the credit facility was available for borrowing at year-end.

Affinion’s senior secured leverage ratio was 2.57 to 1 at Dec. 31, and the fixed-charge coverage ratio was 1.71 to 1.

Segment results

Affinion’s Global Loyalty revenues were up 14.9% for the quarter at $46.4 million, but grew less than 1% for the full year.

International products net revenues increased 8.6% to $87.6 million for the quarter and rose 7.8% for the full year to $362.9 million.

The company’s Insurance and Package products net revenues were up 7.1% for the quarter. For the full year, the segment’s net revenues were down 11.6% at $264 million.

Membership products net revenues declined by 12.8% for the fourth quarter and by 16% for the full year. The segment’s net revenues totaled about $447 million at Dec. 31, according to the release.

Financial highlights

Operating cash flow for 2014 was $37 million, compared to $1.2 million in 2013. Affinion attributed the increase to higher payments in 2013 for litigation, lower cash interest and lower profit sharing receivables due mainly to the conversion to a new primary insurance carrier.

Adjusted EBITDA decreased 3.9% year over year to $281.7 million.

Fourth-quarter net revenues were up slightly from the prior-year period to about $315 million due to growth in the Global Loyalty, International, and Insurance and Package businesses. The Membership business declined.

Net revenues for the full year were down 6.9% from 2013 at about $1.24 billion.

Affinion had a net loss of $374.4 million for 2014.

The company is a Norwalk, Conn.-based provider of marketing services and loyalty programs.

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