Playboy Enterprises is getting more time to transform itself into a licensing company from an aging publisher at risk of breaching its loan agreements as readers desert print.
The company founded by Hugh Hefner in 1953 refinanced $147 million of first-lien debt with a single lender after its financial performance deteriorated, increasing the risk it wouldn't be able to comply with its financial obligations.
Standard & Poor's last month said the publisher was "vulnerable" because of "sporadic operating shortfalls," competition in brand licensing and a worsening outlook for print media.
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Playboy, whose first issue came out when Dwight D. Eisenhower was president and featured Marilyn Monroe on its cover, has divested assets including its cable network and outsourced magazine printing to focus on licensing its brand. S&P rates the company CCC+, a level reserved for borrowers it deems "currently vulnerable to nonpayment."
"There's a lot more explicit information and content out there," said Andy Liu, an S&P analyst in New York. "That's hurting their prospects" in licensing.
Playboy closed on the deal on Tuesday, which may include additional financing, according to Jeff Majtyka, a spokesman for the company at Brainerd Communicators in New York. The new financing lowered the interest rate, reduced restrictive covenants and increased investment flexibility, Majtyka said without disclosing the new lender's identity.
"By further improving its capital structure, Playboy is better positioned to leverage its reinvigorated brand to drive growth in revenue and cash flows through attractive opportunities in global licensing and content, including digital media," Majtyka said in an email.
Since starting to shift to a brand-management company in November 2011, Playboy has faced a decline in print media business that's offset growth in licensing, according to the S&P report. The credit rater expects sales to be no better than unchanged this year.
Without the new loan and deteriorating earnings, the company may have breached its loan covenants, S&P said.
A young Hugh Hefner. Hefner founded Playboy in 1953. Photo / Twitter @YourHistoryPics
Playboy's debt will be more than 8 times its earnings before interest, taxes, depreciation and amortisation this year and 6.5 times in 2015, according to S&P's adjusted figures.
The single lender may indicate "that they couldn't syndicate it out to a wider range of investors or maybe it's a new investor," Margie Patel, a money manager at Wells Fargo in Boston, said in a telephone interview.
The company obtained $185 million of first-lien loans in April 2013 in a deal arranged by Jefferies Group, according to data compiled by Bloomberg. The magazine reduced its debt by $35 million late last year, Majtyka said.
A partnership controlled by Hefner and private-equity firm Rizvi Traverse Management took Playboy private in March 2011.
Hefner, a former copywriter at Esquire, started Playboy magazine with $6,000 in loans from friends and $600 of his own money, according to business historian Hoover's. He designed the first issue on his kitchen table with pictures of Monroe that he bought for $500.
"Here's an entity that created a market," Patel said. "And now the whole world moved away from them."