Latest in European Leveraged Finance – PetSmart: Barking up the Wrong (Covenant) Tree?

Following months of rumors, PetSmart announced in June that it had spun-off a 20% stake in Chewy – the internet retailer that it had acquired less than a year earlier – to its shareholders, and transferred another 16.5% stake to an unrestricted subsidiary.

Chewy’s guarantee of PetSmart’s secured term loan and senior bonds, as well as security over Chewy assets, also appear to have been automatically released as a result. This market wrap considers the loan and bond covenants that appear to have permitted the transactions and explores the (perhaps under-appreciated) flexibility for a distressed exchange that the transactions may have facilitated.

Please click here to read the market wrap.