Party City hopes cost actions will boost liquidity for arduous 2023

By Devika Patel

Knoxville, Tenn., Nov. 9 – Party City Holdco Inc. management expects that $30 million in annualized savings from cost actions will increase liquidity as the company navigates a challenging 2023 impeded by “significant inflationary pressures.”

As of Sept. 30, Party City had $122 million in total liquidity, comprising $30 million in cash and $92 million of revolver availability.

“Our cost actions will drive approximately $30 million in annualized savings, improving our liquidity position as we navigate what could be a challenging macro environment in 2023,” executive vice president and chief financial officer Todd E. Vogensen said on the company’s third quarter ended Sept. 30 earnings conference call on Tuesday.

“The operating environment remains challenging with temporary but persisting cost headwinds, and the consumer is feeling the effects of the significant inflationary pressures,” he said.

Net debt was $1.67 billion at quarter-end.

On July 19, certain company subsidiaries entered into a seventh amendment to their ABL credit agreement, which increased total commitments under the asset-based revolver to $562,110,500 from $475 million.

The increase included the establishment of a new $17,110,500 asset-based first-in, last-out revolving tranche like the FILO facility that previously existed under the ABL agreement prior to the fifth amendment.

Beginning in March 2023, scheduled quarterly payments of the loans under the FILO facility are required to be 5.55% of the original principal amount of the facility in effect on the date of the ABL amendment with a corresponding reduction to the aggregate commitments under the FILO facility.

The FILO facility and the other ABL loans have the same final stated maturity date in February 2026 subject to a springing maturity under certain circumstances if the maturity date of Party City’s debt has not been extended or refinanced.

The ABL amendment replaced the interest rate benchmark with SOFR from Libor, subject to a credit spread adjustment of 10 basis points.

The rates for the applicable margin for borrowings under the ABL facility remain unchanged, ranging from 150 bps to 175 bps for adjusted term SOFR borrowings. The rate for borrowings under the FILO facility is SOFR plus 275 bps.

The amendment made certain changes to the excess availability trigger for the springing fixed charge coverage ratio covenant in connection with the commitment increase under the ABL facility. Pursuant to the ABL amendment, Party City must comply with the financial covenant if excess availability under the ABL facility on any day is less than the greater of $46 million, which was increased from $40 million, and 10% of the total line cap.

As of July 21, there was approximately $146 million available under the ABL facility.

JPMorgan Chase Bank, NA is the administrative agent.

JPMorgan Chase Bank, NA, Bank of America, NA and Wells Fargo Bank, NA are the joint bookrunners and joint lead arrangers.

Wells Fargo Bank, NA and Bank of America, NA are the syndication agents.

Co-documentation agents are Credit Suisse AG, Cayman Islands Branch, MUFG Union Bank, NA, TD Bank, NA, Bank of Montreal and Deutsche Bank Securities, Inc.

Party City is an Elmsford, N.Y.-based owner of retail party supplies stores.

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