CSC ServiceWorks, Joann term loans dip with downgrades; Qlik, Tropicana strengthen

By Sara Rosenberg

New York, Jan. 6 – CSC ServiceWorks Inc. (Spin Holdco Inc.) saw its first-lien term loan B drop by a few points in the secondary market on Friday in reaction to a downgrade by Moody’s Investors Service, and Joann Inc.’s term loan was bid lower following a downgrade by S&P Global Ratings.

Meanwhile, Qlik Technologies Inc.’s term loan B was once again higher in trading after a rise in the previous session on acquisition news, however, this gain may have been more a function of the general market feeling stronger, and Tropicana’s (Naked Juice LLC) first-lien term loan was better despite being downgraded by S&P.

CSC softens

CSC ServiceWorks’ term loan B fell in trading on the back of Moody’s decision to cut the company’s corporate family rating and senior secured debt ratings to Caa1 from B3, traders said.

One trader had the term loan quoted at 80 bid, 83 offered, down from 83 bid, 85 offered, and a second trader had the term loan quoted at 79 bid, 81 offered, down from 83½ bid, 85 offered.

“The downgrade to Caa1 reflects Spin’s stressed liquidity and elevated leverage. Weaker than expected utilization levels in community laundry and increasing labor and fuel costs have led to margin deterioration through the first half of the fiscal year ending March 2023,” said Justin Remsen, assistant vice president at Moody’s, in the ratings release.

“While we forecast a modest uptick in margins, we expect the company to burn about $100 million in cash in fiscal year ending March 2024. Rising interest costs with $2 billion of unhedged floating rate debt and the company’s capital intensive business model are key drivers of the cash use. We believe significant cuts to capital spending are required to provide additional liquidity. This comes amidst uncertainty with the company’s sponsor, turnover of multiple executives, and expectations for a weaker macro-economic environment,” Remsen added.

CSC ServiceWorks is a Melville, N.Y.-based provider of laundry solutions and air vending services.

Joann bid retreats

Joann’s term loan slipped to 65 bid, 70 offered after the company’s issuer credit and term loan ratings were downgraded to CCC+ from B- with a negative outlook by S&P, according to one trader. The trader had the term loan quoted at 68 bid, 70 offered on Thursday, while a second trader had the loan quoted at 67 bid, 71 offered prior to the downgrade news.

S&P said that Joann’s third-quarter 2022 performance remained weak, with a comparable-sales decline of 8% and continuing cash burn that added to an already high debt load. The rating agency expects sluggish consumer spending in 2023 and views Joann’s capital structure as potentially unsustainable given its very high leverage.

S&P puts Joann’s adjusted leverage in the low-9x area in fiscal 2023, and said that in fiscal 2023 through the third quarter, the company’s debt burden increased by $283 million to $1.1 billion, funded by draws on its ABL facility.

Joann is a Hudson, Ohio-based retailer of fabrics and crafts.

Qlik gains

Qlik Technologies’ term loan B moved up to 99 bid, par offered on Friday from 98¾ bid at the end of the day on Thursday, a trader remarked. On Wednesday, the trader had the loan quoted at 97½ bid, 98½ offered.

The paper moved up on Thursday after the company announced its intention to purchase Talend.

But, according to the trader, Friday’s move higher was probably more a function of generally stronger secondary market than continued reaction to the acquisition news.

“Generally [the] market is higher today. Names are up anywhere from a quarter of a point to a point,” the trader added.

Closing on the acquisition is expected during the first half of 2023, subject to customary regulatory approvals. Terms of the proposed transaction were not disclosed.

Both Qlik and Talend are Thoma Bravo portfolio companies.

Qlik is a King of Prussia, Pa.-based data analytics company. Talend is a San Mateo, Calif.-based data integration and data management company.

Tropicana strengthens

Tropicana’s first-lien term loan strip rose even though the debt was downgraded on Friday, with one trader quoting it at 91½ bid, 92½ offered, up from 90 bid, 91 offered, and another market source quoting it at 91 bid, 93 offered, up from 90½ bid.

The company’s second-lien term loan was unchanged at 86 bid, 88 offered, the trader said.

Regarding the first- and second-lien term loans’ trading performance, the trader explained that either people knew the downgrade was coming or the general market being higher counteracted the downgrade.

S&P trimmed Tropicana’s issuer credit and first-lien credit facility ratings to B- from B, and second-lien term loan to CCC from CCC+. The outlook is stable.

The downgrades were attributed to the expectation that the company’s profitability and credit metrics will remain weak in 2023 following lost business with retailers in 2022 primarily driven by significant supply chain disruptions and high inflation that led to low fill rates.

The company’s adjusted leverage is expected by S&P to approach 10x as of fiscal year-end 2022, compared to about 7.25x pro forma at close for the leveraged buyout.

Tropicana is an owner of juice brands, including Tropicana, Naked Juice, KeVita.

Fund flows

In other news, actively managed loan fund flows on Thursday were negative $103 million and loan ETFs were positive $2 million, market sources said.

Actively managed high-yield fund flows on Thursday were positive $15 million and high-yield ETFs were positive $106 million, sources added.

Loan indices rise

IHS Markit’s iBoxx loan indices were stronger on Thursday, with the Leveraged Loan indexes (MiLLi) closing out the day up 0.20% and the Liquid Leveraged Loan indices (LLLi) closing out the day up 0.24%.

Month to date, the MiLLi is up 0.39% and the LLLi is up 0.52%.

Average secondary market bids in the U.S. on Thursday were 91.97, up 0.07% from the previous day and up 0.08% year to date.

According to the IHS Markit data, some of the top advancers on Thursday were Venator’s June 2017 covenant-lite term loan B at 71.25, up from 67, West Marine’s June 2021 covenant-lite term loan at 39, up from 38, and One Call Medical’s April 2021 covenant-lite term loan at 82.63, up from 80.75.

Some top decliners on Thursday were Fox US Bidco/Robertshaw’s February 2018 second-lien covenant-lite term loan at 49.13, down from 51.50, National CineMedia’s June 2018 term loan B at 23.30, down from 24.34, and United Road Services’ September 2017 covenant-lite term loan B at 59.02, down from 60.08.

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