Apollo’s Shutterfly Debt Concessions Expose AI, Competition Risk

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As part of the latest refinancing, the Barclays-led bank group had planned to sell a $500 million leveraged loan, but pivoted to have the first-lien chunk held by an anticipated private credit lender, Bloomberg reported. The second-lien portion was increased to $250 million from $225 million. 

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Unsecured Bonds

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Apollo bought Shutterfly in a 2019 leveraged buyout. The acquisition refinancing had a bumpy ride, with banks forced to ultimately fund the deal which closed before the loans and bonds could price as talks with investors dragged out. 

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Apollo had also bought a $300 million chunk of unsecured bonds backing the purchase amid lackluster demand for the financing, Bloomberg reported at the time. 

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Apollo continues to own the unsecured bonds though has extended the debt’s maturity, according to the people. Those notes are so-called payment-in-kind — meaning Shutterfly can repay Apollo its interest in the form of additional debt. While this conserves Shutterfly’s liquidity, it expands the total amount the company will eventually owe its sponsor.

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In the 2023 debt overhaul, which Moody’s and S&P Global Ratings labeled a distressed debt exchange for demoting creditor claims, lenders also faced losses. 

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Shutterfly had been in talks with a private credit group led by General Atlantic for $2 billion for a refinancing, Bloomberg reported in October. But that plan faltered, other people familiar with the matter said at the time, and the Barclays-led bank group stepped in. 

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A representative for General Atlantic declined to comment. 

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Shutterfly reported an Ebitda loss of $19.7 million for the three months through March, widening from the $17.2 million loss it posted for the same period a year earlier, according to the bond documents. Net revenue was $313.5 million, down 8% year-over-year.

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On an adjusted basis, the company posted Ebitda of roughly $400,000 for the same three months, compared to a $1.5 million loss for the prior year. Shutterfly also has total liquidity of $474 million and an undrawn revolver, Bloomberg previously reported. 

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Still, Shutterfly’s business is highly seasonal and dependent on fourth-quarter earnings to offset operating losses in the first nine months of the year, according to the Moody’s report. 

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Rare Success

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The outcome for lenders of the latest deal is casting the 2023 debt restructuring — known in the market as a liability management exercise — in new light. While aggressive LMEs often end up just delaying an inevitable bankruptcy filing, this one is being seen by some in the market as a rare LME success story, given the more favorable outcome from creditors, the people said. 

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Shutterfly’s $1.15 billion of junk bonds — which were oversubscribed — priced at 98.2 cents, and have since traded up. 

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According to a separate Moody’s report last month, about a quarter of companies that go through a distressed exchange event end up in so-called “hard defaults” such as bankruptcy or a missed payment.

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“Refinancing out of the LME debt shows real progress since 2023 and we remain optimistic in their continued deleveraging,” said Peter Sakon, a senior analyst at CreditSights. “But the lender-friendly concessions made during syndication tell you the market is not yet fully convinced.”

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Deals

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