Service King has warned its lenders that it is running out of cash and may not be able to repay debt, endangering its ability to remain in business, Bloomberg News has reported.
Citing unnamed sources familiar with the company’s most recent financial results, Bloomberg reported that the company had $31 million in cash as of the third quarter, after drawing $72 million on its revolving credit facility and hitting its borrowing limit.
Sources also told the news organisation that the company has entered into a sale and lease-back agreement with some of its real estate holdings, generating $66 million in gross proceeds.
Blackstone Inc., the majority stakeholder in Service King, declined to comment on the report, and Service King and minority stakeholder The Carlyle Group did not respond to requests for comment.
Service King, which lists 345 locations in 24 states, reported a loss of $6 million in adjusted earnings during the third quarter. That’s in comparison to the $5.4 million loss it reported in the same period in 2020, and the $27 million profit reported for the third quarter of 2019.
In September, Moody’s Investors Service downgraded all ratings of Midas Intermediate Holdco II, LLC (trading as Service King), to Caa3 from Caa1, which is considered of poor standing and very high risk. Moody’s cited the company’s “weak liquidity,” and its need to reduce its bonds outstanding to below $135 million by to avoid triggering a call on its loan beginning 1 June 2022. The company’s probability of default rating was also downgraded, to Caa3-PD from Caa2-PD.
Even taking into account the effect of the COVID-19 pandemic on the collision repair industry, Service King’s metrics “remain weak,” Moody’s said. Revenue totalled $265 million in the quarter ended 2 October, up 27% year-over-year but down about 18% from 2019.
“Moody’s believes that these risks well outweigh Service King’s solid market position in the highly fragmented collision repair sub-sector, and its mutually-beneficial relationships with national and major insurance carriers which represents the vast majority of revenue. While demand fundamentals are improving as miles driven creep up, there is limited visibility as to the velocity of the improvement in this key industry metric,” Moody’s said.
In response to the pandemic, Service King had converted more than 90 of its locations to skeleton-crew intake facilities and furloughed 35% of its workforce, according to Moody’s.
This article courtesy of John Huetter of Repairer Driven Education (RDE). Check out the website at: http://www.repairerdrivennews.com/.