Shutterfly starts exchange offer backed by broader refinancing action

Chicago, May 16 – Shutterfly LLC launched an exchange offer and consent solicitation relating to its $750 million outstanding 8½% first-priority senior secured notes due 2026 (Cusips: 719245AD4, U7189AAB8) backed by a transaction support agreement with noteholders representing 74% of existing notes and more than 80% of existing term loans, according to a press release.

Parties signing off on the transaction support agreement include JP Morgan Asset Management, Sixth Street and other institutional investors.

Exchange offer

Subsidiary Shutterfly Finance, LLC is offering noteholders representing any and all of the 8½% existing notes the opportunity to exchange their par of $1,000 notes with a required $109.11 cash payment per $1,000 note for one of two options.

First, noteholders will receive $109.11 of new 9¾% first-priority senior secured notes due 2027 and $900 of new 8½% second-priority senior secured cash/PIK notes due 2027.

Alternatively, as a second option, noteholders will receive $109.11 of new first-lien term loans of the new borrower under a first-lien credit agreement and $900 of new second-priority notes.

Noteholders may either elect to tender their notes in full for only one option, or partially tender their notes for an option and then tender the remaining portion of their notes for the other option.

Partial tenders of existing notes, however, will not be accepted.

The total considerations listed above are for noteholders who tender by the early deadline.

After the early deadline, under each option there would be $30 less of new second-priority notes.

Accrued interest will be paid in cash up to the initial settlement date (but not the final settlement date).

Consent solicitation

Participating tendering noteholders will be automatically delivering consents for proposed amendments to the indenture governing the existing notes to eliminate substantially all of the restrictive covenants in the existing notes indenture and make certain other changes. Noteholders may not consent without participating in the exchange offer.

At least a majority of noteholders must consent.

The supplemental indenture will become operative when the tendered notes are accepted for exchange.

Support

The company entered into a transaction support agreement on May 15 with holders of approximately 74% of the existing notes.

Those noteholders have agreed to tender their notes and participate in the offer by the early participation time.

Shutterfly expects to receive the requisite consents, therefore, by the early participation time.

Term loan lenders

Further, Shutterfly worked with lenders representing more than 80% of the total amount of outstanding term loans under the company’s amended and restated first-lien credit agreement from July 7, 2021.

Lenders of existing term loans are being offered a similar choice, namely they may acquire a pro rata amount of either new first-lien term loans or new first-priority notes and exchange $1,000 principal amount of existing term loans for $900 of new second-lien term loans under a new second-lien credit agreement.

Revolving credit facility lenders have the option to exchange their commitments into revolving commitments of the new borrower, subject to a 7.5% reduction in their commitments.

Lenders have agreed that all holders of existing notes may participate in the exchange offer and have agreed to the consent solicitation.

Other agreements

As a side notes, pursuant to the agreements, all of the company’s senior notes due 2027 will be exchanged for an equal amount of new senior notes due 2028 of the new issuer.

The maturity of Sherwood Intermediate Holdings, LLC’s 8% senior notes due 2024 will be extended and the notes will be refinanced (in whole or in part) with new 8% senior unsecured PIK notes due 2028 of the new issuer.

Backstop

Certain financial institutions, under the transaction support agreement, have each agreed to purchase at par its agreed percentage of an aggregate principal amount of new first-priority notes and/or new first-lien term loans so that the total principal amount of debt between the two equals $200 million in cash proceeds.

The proceeds will be loaned by the new issuer to the company via an intercompany note.

Cash received in excess of a stated threshold must be used to repay borrowings under the new revolving credit facility.

Conditions

The exchange offer and consent solicitation are conditioned on participation from holders of a majority of the notes, the receipt of the requisite consents in the solicitation, the closing of the credit facilities exchange and the substantially concurrent satisfaction or waiver of any or all of the other conditions set forth in the offering memorandum.

Details

The early participation time is 5 p.m. ET on June 5 with the cash payments due by 5 p.m. ET on June 6.

The exchange off expires at 5 p.m. ET on June 14 with the related cash payments due by 5 p.m. ET on June 15.

Holders of existing notes will be asked to complete an eligibility letter.

Settlements are expected to take place three days after each deadline.

Epiq Corporate Restructuring, LLC is the transaction agent for the exchange offer and consent solicitation.

Shutterfly is a Redwood City, Calif.-based manufacturer and seller of customizable photo-based products and services.

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