Reports: Chewy, PetSmart Split to Operate as Separate Entities

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According to several reports, PetSmart and Chewy.com will soon operate as separate companies, following a recapitalization plan.

Bloomberg reported on October 22 that three years after saddling PetSmart Inc. with debt acquire online rival Chewy Inc., a group led by private equity firm BC Partners is splitting them in two, betting that the companies will perform better on their own.

The Bloombert report stated: “The group plans to recapitalize PetSmart with $1.3 billion of equity and $4.65 billion of debt raised from institutional money managers, according to credit grading firms and documents released to investors.“plans to recapitalize PetSmart with $1.3 billion of equity and $4.65 billion of debt raised from institutional money managers, according to credit grading firms and documents released to investors.”

All of PetSmart’s remaining shares in Chewy will be distributed to the BC Partners-led group, which will operate the fast-growing but unprofitable online retailer as a wholly separate business, the Bloombert report added. The new structure will result in a smaller debt load relative to earnings as well as longer maturities for PetSmart, which will continue to focus on its brick-and-mortar locations.

In addition, PetSmart released the following press release on October 26:

PetSmart, Inc. announced today that it together with its wholly-owned subsidiary, PetSmart Finance Corp., intend to offer, subject to market and other conditions,  $1,200 million aggregate principal amount of senior first lien notes due 2027  and  $1,150 million aggregate principal amount of senior notes due 2028 in a private offering. The Secured Notes will be senior secured obligations of the Issuers and will be guaranteed by certain of their wholly owned domestic subsidiaries. The Unsecured Notes will be senior unsecured obligations of the Issuers and will be guaranteed by certain of their wholly owned domestic subsidiaries.

The Issuers intend to use to the proceeds of the Offering, together with cash on hand, borrowings under a new $2,300 million senior secured term loan facility and proceeds from a contribution of approximately $1,303 million to PetSmart’s equity from its parent company, to fund the early redemption, repurchase or repayment in full of outstanding debt under PetSmart’s existing term loan and PetSmart’s existing notes and to pay related fees, costs, premiums and expenses in connection therewith.

Substantially concurrently with the consummation of the Refinancing Transactions, PetSmart intends to distribute, directly or indirectly, all shares of Chewy Inc. common stock currently held by PetSmart and its subsidiaries. Following completion of the Chewy Distribution, PetSmart will not own any shares of Chewy common stock. Accordingly, neither Chewy nor any subsidiary of Chewy will be a subsidiary of PetSmart.