WSJ: Banks struggling to sell $2 billion debt for Apollo purchase of Shutterfly

The Wall Street Journal is reporting Barclays PLC, Citigroup Inc. and other investment banks hired by Apollo Global Management have struggled in recent days to raise about $2 billion of debt for the buyout of Shutterfly Inc. Due to the tepid reception to the debt, the banks agreed to buy up to $280 million after failing to find enough outside investors, as well resorting to reducing the price of the debt to entice investors, the report said.

The article added the Shutterfly deal difficulties is a reflection of how difficult it is for Wall Street firms to market risky debt after a global selloff in August. Overall, corporate loans with junk credit ratings have not drawn much attention since the spring.

Shutterfly and its bankers began marketing a $1.285 billion loan and a $500 million bond to investors in early September, touting strong growth in Shutterfly’s sales of personalized gifts such as photo mugs and pillows, according to filings with the Securities and Exchange Commission and reports by S&P Global Market Intelligence. The loan included a rare feature committing the company to repay $100 million of the debt at the end of 2019 with cash from holiday-season sales, people familiar with the matter said.

Still, investors were put off by declining sales of photo prints and what they saw as a low barrier to entry for larger competitors such as Amazon.com Inc. or Google, the people familiar with the matter said. The banks cut the price of the debt hoping to finalize the deal last week but still failed to secure enough orders, they said.

The news is the latest in a series of big financial moves in the past few months, with H.I.G. Capital investing in Circle Graphics, RPI purchasing cross-country competitor ColorCentric, Edge Imaging acquiring Added Touch Photo, German giant CEWE Color purchasing WhiteWall, KKR buying Corel Corp., and so on. It’s widely perceived there is excess capacity in the photo printing space, so it makes sense for well-funded players to look for partners and targets.