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Bloomberg
Sycamore Partners is looking to take most of its cash out of Staples Inc through a recapitalisation that will saddle the company with roughly $1 billion of additional debt, according to people with knowledge of the plan.
If successful, the debt sale will allow the private equity firm to recoup roughly two-thirds of the $1.6 billion it put up to take Staples’ corporate office-supply business private
18 months ago, leaving around $600 million of equity in the unit, the people said. Sycamore may consider an exit from the investment over the next year, most likely through an initial public offering, one of the people said.
The recapitalisation and any IPO would be focussed on the division of Staples that sells anything from pens to office chairs to large corporate clients, which Sycamore carved out of the chain’s retail operations at the time of the LBO. The transaction will increase Staples’ debt load to $5.325 billion from around $4.25 billion.
Representatives for UBS Group AG, Sycamore and Goldman Sachs Group Inc, the two banks leading the debt sale, declined to comment. The people familiar asked not to be identified discussing a private transaction.
Staples plans to sell $3.2 billion of new term loans as well as more than $2 billion of other secured and unsecured debt. Its total debt load, net of cash, will be equivalent to around 4.7 times a measure of earnings, the same person said.
The company is marketing the deal with adjusted earnings before interest, taxes, depreciation and amortisation of around $1.2 billion, including expected cost savings from recent acquisitions, two of the people said.
Sycamore will need to buy back the debt Staples issued in 2017 because covenants would have prevented a dividend this large, two of the people said. The $1 billion of existing unsecured bonds jumped 8 points to 107.75 cents on the dollar, according to Trace data.
Staples will need to buy back those notes at the so-called make-whole premium, which compensates investors for missed future interest payments, resulting in a payment of at least 111 cents.