Shutterfly restructures debt

Shutterfly, LLC announced the launch of a debt exchange offer and consent solicitation for eligible noteholders, as detailed here in the press release. The announcement follows reports that Shutterfly has been struggling to service its debt on lagging sales. The U.S.’s leading personalized photo products company, Shutterfly replaced its CEO last week.

Pursuant to a Transaction Support Agreement entered into by the company and consenting noteholders and lenders, including JP Morgan Asset Management, Sixth Street, and other institutional investors, who represent approximately 74% of the aggregate principal amount of Existing Notes and more than 80% of the aggregate principal amount of Existing Term Loans (each, as defined below), the Exchange Offer (as defined below) will be offered pro rata to all eligible holders of Existing Notes, and the Company intends to consummate a similar exchange with respect to its Existing Term Loans (as set forth in more detail below).

As a result of the Refinancing Transactions (as defined below), the Company expects to raise approximately $200 million of additional debt financing, extend existing debt maturities, and meaningfully improve liquidity. The Refinancing Transactions support the Company’s ability to expand its position as a leading e-commerce provider of personalized merchandise.

“We are pleased to announce this agreement with the broad support of our lenders and Apollo, which reflects their constructive dialogue throughout this process, as well as their confidence in our market position and the opportunities ahead. This step will strengthen our financial foundation and support our long-term strategic plans by enabling us to continue implementing key growth initiatives,” said Sally Pofcher, Chief Executive Officer of the Company.

A representative of the consenting noteholders that led the negotiation with Apollo and the Company said, “We are pleased that this transaction extends the same treatment to all the Company’s lenders, tightens credit documentation, and provides Shutterfly runway to pursue its growth objectives.”

Exchange and Consent Solicitation Details

Shutterfly Finance, LLC, a subsidiary of the Company (the “New Issuer” or “New Borrower”), has commenced an offer to eligible holders of the Company’s 8.50% First-Priority Senior Secured Notes due 2026 (the “Existing Notes”) to exchange (the “Exchange Offer”) any and all of the outstanding Existing Notes, together with a required cash payment (as described below), for, at the option of each eligible holder of Existing Notes, either (1) new 9.75% First-Priority Senior Secured Notes due 2027 (the “New 1L Notes”) of the New Issuer and new 8.50% Second-Priority Senior Secured Cash/PIK Notes due 2027 (the “New 2L Notes”) of the New Issuer (the “First Option Consideration”) OR (2) new first lien terms loans of the New Borrower under a new first lien credit agreement (such term loans, the “New First Lien Term Loans” and such credit agreement, the “New First Lien Credit Agreement”) and New 2L Notes (the “Second Option Consideration”). An eligible participant may elect to receive First Option Consideration or Second Option Consideration with respect to all of the Existing Notes such participant tenders in the Exchange Offer or such participant may elect to receive First Option Consideration with respect to a portion of the Existing Notes tendered and Second Option Consideration with respect to the remaining portion of Existing Notes tendered (in each case, subject to the terms of the Exchange Offer).

Concurrently with the Exchange Offer, the New Issuer commenced a consent solicitation (the “Consent Solicitation”) whereby the New Issuer is soliciting consents (“Consents”) from eligible holders of the Existing Notes to certain proposed amendments (the “Proposed Amendments”) to the indenture governing the Existing Notes (the “Existing Notes Indenture”) to eliminate substantially all of the restrictive covenants in the Existing Notes Indenture and make certain other changes. Eligible holders may not deliver Consents without participating in the Exchange Offer and eligible holders may not participate in the Exchange Offer without delivering the related Consents. Promptly following the Early Participation Time (as defined below), if holders of at least a majority of the outstanding principal amount of Existing Notes (excluding Existing Notes held by the Company and its affiliates) consent to the Proposed Amendments (the “Requisite Consents”), the Company and the trustee (the “Existing Trustee”) under the Existing Notes Indenture will enter into a supplemental indenture with respect to the Existing Notes Indenture (the “Supplemental Indenture”) to give effect to the Proposed Amendments. The Supplemental Indenture will be a valid, binding and enforceable agreement when it is executed and delivered by the Company and the Existing Trustee, which may be promptly following the Early Participation Time if the Requisite Consents have been received by such time. The Proposed Amendments will not become operative unless and until Existing Notes representing at least the Requisite Consents are validly tendered (and not validly withdrawn) and accepted for exchange pursuant to the Exchange Offer.

The following table sets forth the total consideration (the “Total Consideration”) per $1,000 principal amount of Existing Notes if validly tendered at or prior to the Early Participation Time and the exchange consideration (the “Exchange Consideration”) per $1,000 of Existing Notes if validly tendered after the Early Participation Time but at or prior to the Expiration Time and accepted for exchange in the Exchange Offer:

Consideration to be Tendered by Participating Eligible Holders		Total Consideration to be Received by Participating Eligible Holders (per $1,000 Principal Amount of Existing Notes Tendered at or Prior to the Early Participation Time)(3)		Exchange Consideration to be Received by Participating Eligible Holders (per $1,000 Principal Amount of Existing Notes Tendered After the Early Participation Time but at or Prior to the Expiration Time)
All of such Holder’s 8.50% First-Priority Senior Secured Notes due 2026 plusdelivery of a Cash Payment Equal to $109.11 per $1,000 principal amount of Existing Notes Tendered(1)(2)		First Option: (i) $109.11 principal amount of New 1L Notes(4) plus (ii) $900 principal amount of New 2L Notes(5)(6) OR Second Option: (i) $109.11 principal amount of New First Lien Term Loans(7) plus (ii) $900 principal amount of New 2L Notes(5)(6)		First Option: (i) $109.11 principal amount of New 1L Notes(4) plus (ii) $870 principal amount of New 2L Notes(5)(6) OR Second Option: (i) $109.11 principal amount of New First Lien Term Loans(7) plus (ii) $870 principal amount of New 2L Notes(5)(6)

(1) There is currently $750.0 million in outstanding aggregate principal amount of Existing Notes (CUSIP Nos. 719245 AD4 (144A) and U7189A AB8 (Regulation S)), including Existing Notes held by affiliates of the Company. Eligible holders must validly tender (and not validly withdraw) all of such holder’s Existing Notes to participate in the Exchange Offer. Partial tenders of Existing Notes will not be accepted. CUSIP information is provided for the convenience of noteholders. No representation is made as to the correctness or accuracy of such numbers.

(2) For each $1,000 principal amount of Existing Notes validly tendered (and not validly withdrawn), a participating eligible holder must deliver a cash payment of $109.11 (the “Cash Payment”) by the applicable Funding Date (as described below). The Cash Payment required to be paid by each participating eligible holder will be rounded down to the nearest $1.00.

(3) Eligible holders will only be eligible to receive the Total Consideration if they (i) validly tender (and do not validly withdraw) their Existing Notes and deliver the related Consents at or prior to the Early Participation Time and (ii) validly deliver the related Cash Payment at or prior to the Early Funding Date. The Total Consideration is inclusive of the Exchange Consideration.

(4) The principal amount of New 1L Notes issued to each participating eligible holder electing First Option Consideration, similar to the Cash Payment paid by each participating eligible holder, will be rounded down to the nearest $1.00. Accordingly, the principal amount of New 1L Notes issued to each participating eligible holder electing First Option Consideration will be equal to the Cash Payment paid by such participating eligible holder, and the principal amount of New 1L Notes issued to any participating eligible holder will be in increments of $1.00.

(5) Holders of Existing Notes that are accepted for exchange pursuant to the Exchange Offer will be entitled to receive accrued and unpaid interest in cash on such Existing Notes up to, but excluding, the initial Settlement Date (as defined below). In the event that we elect to settle Existing Notes tendered prior to the Early Participation Time prior to the Expiration Time (as defined below), eligible holders who tender after the Early Participation Time will not receive interest on such Existing Notes that accrues from the initial Settlement Date to the final Settlement Date.

(6) An eligible participant may elect to receive First Option Consideration or Second Option Consideration with respect to all of the Existing Notes such participant tenders in the Exchange Offer or such participant may elect to receive First Option Consideration with respect to a portion of the Existing Notes tendered and Second Option Consideration with respect to the remaining portion of Existing Notes tendered (in each case, subject to the terms of the Exchange Offer).

(7) The principal amount of New First Lien Term Loans allocated to each participating eligible holder electing Second Option Consideration, similar to the Cash Payment paid by each participating eligible holder, will be rounded down to the nearest $1.00. Accordingly, the principal amount of New First Lien Term Loans allocated to each participating eligible holder electing Second Option Consideration will be equal to the Cash Payment paid by such participating eligible holder, and the principal amount of New First Lien Term Loans allocated to any participating eligible holder will be in increments of $1.00. In order to be eligible to receive the Second Option Consideration, a participating eligible holder must complete and deliver to Epiq (as defined below) the New Lender Documentation (as described in the Offering Memorandum (as defined below)) no later than 11:00 p.m., New York City time, on the Early Participation Time or Expiration Time, as applicable.

In order to be eligible to receive the Total Consideration, eligible holders must validly tender (and not validly withdraw) their Existing Notes at or prior to 5:00 p.m., New York City time, on June 5, 2023 (such date and time, as the same may be extended, the “Early Participation Time”) and deliver the related Cash Payment at or prior to 5:00 p.m., New York City time, on June 6, 2023 (such date and time, as the same may be extended, the “Early Funding Time”). The Exchange Offer will expire at 5:00 p.m., New York City time, on June 14, 2023, unless extended or earlier terminated (the “Expiration Time”). Eligible holders who tender their Existing Notes after the Early Participation Time but at or prior to the Expiration Time must deliver the Cash Payment at or prior to 5:00 p.m., New York City time, on June 15, 2023 (such date and time, as the same may be extended, the “Final Funding Time,” with the Early Funding Time and Final Funding Time each being referred to as the applicable “Funding Time”). Tendered Existing Notes may be validly withdrawn at any time prior to the Early Participation Time, but not thereafter. Subject to the satisfaction or waiver of the respective conditions, the Exchange Offer is expected to settle on the third business day after the Final Funding Time (the “Final Settlement Date”). The Company may, but is not obligated to, at any time and from time to time following the Early Participation Time and prior to the Expiration Time, elect to provide for an “early settlement” with respect to any Existing Notes validly tendered for exchange (and not validly withdrawn) pursuant to the Exchange Offer at or prior to the Early Participation Time and related Cash Payment validly delivered pursuant to the Exchange Offer at or prior to the Early Funding Time, provided that all conditions to the Exchange Offer have been satisfied or waived by us (such settlement date, an “Early Settlement Date”). If the Company exercises such right, such exercise shall be promptly announced through a press release, in which case we would expect the Early Settlement Date to be on or prior to the third business day after the date of such announcement. We refer to the Early Settlement Date or the Final Settlement Date, as applicable to any Existing Notes accepted for exchange, as the “Settlement Date.”

On May 15, 2023, we entered into a transaction support agreement (the “Transaction Support Agreement”) pursuant to which, subject to the terms and conditions of the Transaction Support Agreement, holders of approximately 74% of the aggregate principal amount of outstanding Existing Notes (the “Consenting Noteholders”) have agreed to participate in the Exchange Offer and Consent Solicitation with respect to all of their Existing Notes at or prior to the Early Participation Time. As a result, we expect to receive the Requisite Consents prior to the Early Participation Time and enter into the Supplemental Indenture promptly following the Early Participation Time.

In addition, pursuant to the Transaction Support Agreement, the Company has agreed with the Consenting Noteholders and the lenders representing more than 80% of the aggregate principal amount of outstanding term loans (the “Existing Term Loans”) under the Company’s Amended and Restated First Lien Credit Agreement, dated as of July 7, 2021 (as modified from time to time, the “Existing Credit Agreement”), to, among other things:

• offer all lenders of Existing Term Loans the option to acquire their pro rata amount of New First Lien Term Loans or New 1L Notes and exchange each $1,000 in principal amount of Existing Term Loans for $900 in principal amount of new second-lien term loans under a new second lien credit agreement (the “New Second Lien Credit Agreement”) (collectively, the “Term Loan Exchange”);
• offer all holders of existing revolving credit facility commitments the opportunity to exchange their revolving credit facility commitments under the Existing Credit Agreement into revolving credit facility commitments at the New Borrower, subject to a 7.50% reduction of revolving credit facility commitments (reduced dollar-for-dollar by the amount of non-participating revolving credit facility commitments) (such facility, the “New Revolving Credit Facility” and, such transaction, the “Revolver Exchange” and, together with the Term Loan Exchange, the “Credit Facilities Exchange”);
• offer all eligible holders of the Existing Notes the option to participate in the Exchange Offer;
• exchange all of the Company’s 11.00% Senior Notes due 2027 for an equal amount of new senior unsecured notes due 2028 of the New Issuer;
• extend the maturity of Sherwood Intermediate Holdings, LLC’s 8.00% Senior Unsecured Notes due 2024 and refinance (in whole or in part) those with new 8.00% Senior Unsecured PIK Notes due 2028 of the New Issuer; and
• solicit Consents in the Consent Solicitation to the Proposed Amendments to the Existing Notes Indenture and consents from existing lenders under the Existing Credit Agreement to certain amendments thereto.

We refer to the foregoing transactions as the “Refinancing Transactions.”

Subject to the terms and conditions of the Transaction Support Agreement, certain financial institutions (the “Backstop Parties”) have each agreed to purchase at par its agreed percentage of an aggregate principal amount of New 1L Notes and/or New First Lien Term Loans such that the aggregate principal amount of New 1L Notes and New First Lien Term Loans on the final Settlement Date equals $200.0 million (the “Backstop Commitment”) to the extent such amount is not funded by the eligible holders of the Existing Notes in the Exchange Offer and the eligible lenders participating in the Credit Facilities Exchange.

In connection with the consummation of the Refinancing Transactions, the Company will contribute, license, assign or otherwise transfer certain intellectual property and consumer data assets to the New Issuer or its direct subsidiary. We anticipate that the Refinancing Transactions will result in gross cash proceeds of $200.0 million to the New Issuer. The New Issuer expects to loan the net proceeds, after paying transaction fees and expenses, to the Company by way of an intercompany note. Subject to the terms of the New Revolving Credit Facility, we will be required to use cash in excess of a stated threshold to repay borrowings under the New Revolving Credit Facility.

Consummation of the Exchange Offer and the Consent Solicitation is conditioned upon the satisfaction or waiver of the conditions set forth in a confidential offering memorandum (the “Offering Memorandum”), dated as of May 15, 2023. Such conditions include, among other things, (i) eligible holders of at least a majority of the outstanding principal amount of Existing Notes validly tendering, and not validly withdrawing, their Existing Notes in the Exchange Offer at or prior to the Expiration Time and delivering the applicable Cash Payment in the Exchange Offer at or prior to the Funding Date, as applicable (the “Minimum Condition”); (ii) the receipt of the Requisite Consents and execution and delivery of the Supplemental Indenture; (iii) the closing of the Credit Facilities Exchange; and (iv) the substantially concurrent satisfaction or waiver of any or all of the other conditions set forth in the Offering Memorandum. Subject to applicable securities laws and the terms set forth in the Offering Memorandum and in the Transaction Support Agreement, we reserve the right to waive any and all conditions to the Exchange Offer and/or the Consent Solicitation, including the Minimum Condition, in our absolute and sole discretion, and may do so, subject to applicable securities laws, without reinstating withdrawal rights.

Subject to the terms of the Transaction Support Agreement and applicable law, we reserve the right to extend or terminate the Exchange Offer and/or the Consent Solicitation in our sole and absolute discretion, and to otherwise amend or modify the Exchange Offer and/or the Consent Solicitation in any respect.

The Exchange Offer is being made, and the New 1L Notes and the New 2L Notes, are being offered, and will be issued only: (i) to holders of Existing Notes who are (x) reasonably believed to be “qualified institutional buyers” (as defined in Rule 144A under the Securities Act of 1933 (the “Securities Act”)) or (y) institutional “accredited investors” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act and (ii) outside the United States, to holders of Existing Notes who are not “U.S. persons” (as defined in Rule 902 under the Securities Act) in reliance on Regulation S of the Securities Act. The holders of Existing Notes who are eligible to participate in the Exchange Offer pursuant to at least one of the foregoing conditions are referred to as “eligible holders.”

The New Issuer is making the Exchange Offer and the Consent Solicitation only to eligible holders through, and pursuant to, the terms of the Offering Memorandum. The complete terms and conditions of the Exchange Offer are set forth in the Offering Memorandum. None of the Company, the New Issuer, the Guarantors (as defined in the Offering Memorandum), Epiq or any other person takes any position or makes any recommendation as to whether or not eligible holders should participate in the Exchange Offer or deliver Consents pursuant to the Consent Solicitation.

Only eligible holders may receive a copy of the Offering Memorandum and participate in the Exchange Offer and the Consent Solicitation. We have retained Epiq Corporate Restructuring, LLC (“Epiq”) to act as transaction agent for the Exchange Offer and Consent Solicitation. Holders of Existing Notes wishing to certify that they are eligible holders in order to be eligible to receive a copy of the Offering Memorandum should complete the eligibility letter and return it to Epiq as directed therein. Holders of Existing Notes may complete the eligibility letter on-line or obtain a PDF copy of the eligibility letter by following the link at https://epiqworkflow.com/cases/ShutterflyEL. The eligibility letter can be returned via the online portal or by emailing a scan of both pages of the fully completed letter to Epiq at [email protected] and referencing “Shutterfly” in the subject line. Once your response has been reviewed and cleared by Epiq, you will receive the Offering Memorandum from Epiq by email.

This communication is for informational purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security and does not constitute an offer, solicitation or sale of any security in any jurisdiction in which such offer, solicitation or sale would be unlawful. The Exchange Offer is being made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, has not been registered with the SEC and relies on exemptions under state securities laws.