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Between The Lines

16 December 2019 by lberuti

SPLS (Staples Inc.) retails office supplies, furniture and technology. Its client base includes consumers and businesses in the US, Canada, the UK and Germany. In addition to its retail locations, it serves them through mail orders and online. The company was acquired in 2017 by Sycamore, when it became a private company in a $6.9Bln deal. The private equity firm bought $180m of SPLS’s unsecured notes in April during a refinancing operation. When SPLS released its private earnings last week, people did not really react to the 1.3% decline in sales during the third quarter, nor to the improvement of their earnings to $253mln from $243mln for the same period a year ago. What drew their attention was the notice by SPLS that the amount of unsecured bonds held by Sycamore stood at $140m. The disclosure fueled concern that the bond sales might just be the beginning of a bigger unwind. Its translated into a 20% widening of SPLS’s 5-year risk premium which jumped from 508bps at the close on December 10th to 605bps at the close on December 12th, before trading sideways over the last few sessions. The positive price action of the last couple of months has been undone in a couple of days.