Surprise! Where Did My Collateral Go (Again)? The Chewy.com Story
September 18, 2018
By now, many lenders have heard of the steps taken by J. Crew to remove its valuable intellectual property from the collateral securing its term loans and asset-based credit facilities through a clever (although disputed) use of the transactions permitted under the negative covenants included in the credit agreements governing such credit facilities (the “baskets”).
Meanwhile, litigation has begun in connection with the financing led by Citibank that was provided to PetSmart, Inc. for its acquisition of Chewy.com. On June 26, 2018, PetSmart filed a complaint in the United States District Court for the Southern District of New York against Citibank, the former administrative agent under its $4.16 billion term loan facility. The complaint in Argos Holdings Inc. and PetSmart, Inc. v. Citibank, N.A., Case No. 18-cv-5773, charges that Citibank failed to fulfill its contractual obligations under the credit agreement to release certain collateral. How did matters get to the point where this borrower is suing its lenders? And, more importantly, what can we learn from the dispute between PetSmart and its lenders about how the covenants in credit agreements may need to be done differently?
See this article here by Otterbourg attorney, David Morse, on how PetSmart used its covenant baskets to remove key collateral from the reach of its lenders.