Dive Brief:

• Party City has a deal that would lift $450 million in debt from its balance sheet and raise $100 million in new capital, the struggling party goods retailer said in a press release late last week.
• The deal was struck with owners representing 52% of Party City's senior notes due 2023 and 2026.
• Under the agreement, noteholders would trade in the notes for stock and new senior notes due 2026 that pays a higher interest rate (10%) as well as variable-rate notes due 2025.

Dive Insight:

Party City CEO Brad Weston said the deal his company made with the group of lenders "demonstrates the confidence of certain of our bondholders in our strategy and leadership team, and we appreciate their support for our long-term success."

It comes at a time of uncertainty for the retailer, after it temporarily closed its stores in response to the coronavirus pandemic, following a year of sputtering sales that amplified the risks on its balance sheet. 

Party City last year took a hit from a worldwide helium shortage, which dragged on its sales on profits. It then suffered a horrendous season at its Halloween City stores, where sales fell more than 20% during the month of October, hinting at competitive issues in the costume category. 

Fourth quarter retail sales fell more than 12% as Party City's losses ballooned. It then ran into a pandemic that forced a temporary end to mass gatherings, including graduations and birthday parties (drive-by parties notwithstanding). All of this added stress to Party City's debt load, the long-term portion of which stands at about $1.5 billion — a legacy from its private equity acquisition in 2012. 

In late March, S&P Global slapped a junk-level CCC+ rating on Party City, citing the likely "significant headwinds related to the expanding coronavirus pandemic and the weaker economic outlook." The ratings firm also issued a negative outlook for the company, based on "the substantial risks to Party City's operating performance" given the company's weak second half in 2019 along with risks in turnaround execution and "the anticipated substantial decline in its demand due to the coronavirus outbreak," the analysts said. 

The retailer, in short, was facing a heightened risk of bankruptcy. The debt deal, expected to close in June, offers the company some breathing room in terms of timeline as it tries to manage back to health. Part City's turnaround plan is based broadly on improving the in-store experience, beefing up balloon sales, addressing "price value perception," pivoting to customer engagement in stores and building on its omnichannel capabilities.