LevFin Insight: Getty Images sale to family wouldn’t trigger change-of-control; company plans refinancing

9/6/18: The Getty family’s proposed acquisition of the Carlyle Group’s majority interest in Getty Images would not trigger a change of control under the company’s credit agreement, according to sources, who noted that descendants of J. Paul Getty are permitted investors per the terms of the loan.

As reported, the company’s debt advanced Tuesday on news that it plans to refinance its balance sheet in connection with the Getty family’s acquisition of Carlyle’s majority stake in the business. The company said the refinancing could include a combination of loans, senior notes and preferred equity and that the process is expected to take two to three months. The Getty family’s acquisition of the business is expected to close by the end of the third quarter.

Descendants of J. Paul Getty are also Permitted Holders under the bond indentures, so the bonds’ change-of-control covenant also permits a sale to the family, according to analysts at LFI sister publication Covenant Review.

The change-of-control language allowing for a sale to the family explains why the company’s term loan remains at a modest discount to par. The term loan due 2019 (L+350, 1.25% floor) is pegged on either side of 99, up roughly 1.5 points from prior to the news, sources said.

Bookrunners on the proposed refinancing have not yet stepped forward, but note J.P. Morgan is administrative agent on the existing loans.

The refinancing would presumably address the issuer’s near-term debt maturities: The approximately $1.8 billion term loan matures in October 2019, while the company has two series of bonds outstanding that come due in October 2020. There is about $316 million left outstanding for what was originally a $550 million issue of 7% unsecured notes due 2020 on account of an uptier debt swap in late 2015 that produced a $252.5 million issue of 10.5% first-lien notes due 2020. The term loan and 7% notes date back to Carlyle’s 2012 acquisition of a majority stake in the business, a creator and distributor of still imagery, video and multimedia products.

While the term loan had moved well off lows prior to Tuesday’s announcement, the loan had once traded at distressed levels amid disappointing results at its midstock business. Bids for the paper touched as low as the 59s in December 2015, according to IHS Markit.

Similarly, the 7% notes visited the 30s in late 2015 and were distressed in the 50–70 context in the years to follow, eventually surpassing the 90 mark this year. Most recently, the paper traded up to around 98.5 on the news, from the mid-90s prior. Valuation is just under the par call price that goes live on Oct. 15, from 101.75 at present.

Terms of the proposed Getty family transaction were not disclosed, but S&P noted in a report Tuesday that the Getty family currently owns slightly less than 49% of the company and is acquiring Carlyle’s 51% stake.

S&P placed its CCC rating on Getty on CreditWatch with developing implications, which it said reflects the “uncertainty of the likelihood, cost, and timing of the debt-refinancing effort.” If successful, the refinancing effort would extend debt maturities and provide the company with some breathing room to continue to turn around and grow the business. The rating agency noted that it could raise its credit rating by one or more notches, adding that if the refinancing is not successful “it would increase the probability that the company would pursue debt restructuring efforts or bankruptcy to address its debt maturities and high annual fixed charges.”

S&P rates the senior secured debt at CCC, with a 4 recovery rating; the unsecured debt is rated CC, with a 6 recovery rating.

Moody’s rates the issuer at Caa1, with the secured debt rated B3 and the unsecured debt is rated Caa3. — Kerry Kantin

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