Affinion Group Holdings, LLC

About

“Affinion Group Holdings, Inc. engages in designing, marketing, and servicing customer engagement and loyalty solutions worldwide. It develops programs and solutions that motivate and inspire loyalty. The company, through its proprietary technology platforms and end-to-end customer service capabilities, designs, administers, and fulfills loyalty, customer engagement, and insurance programs. Its programs and solutions include loyalty programs and solutions that help reward, motivate, and retain consumers. … In addition, the company provides insurance programs and solutions that help protect consumers in the event of a covered accident, injury, illness, or death; and markets accident and life insurance programs on behalf of its financial institution partners. Its insurance solutions include accidental death and dismemberment insurance, hospital accident plan, recuperative care, graded benefit whole life, and simplified issue term life insurance. Affinion Group Holdings, Inc. was founded in 1973 and is headquartered in Stamford, Connecticut”.-Bloomberg

Corporate Highlights

4/10/2019: Company completes “comprehensive recapitalization.” See Investment Highlights.

11/14/2018: The Company reported IIIQ 2018 results. Highlights:

 …Adjusted EBITDA of $41.1 million reflects the exclusion of, among other items, $7.6 million in costs related primarily to restructuring of certain operations including related severance costs, $0.4 million of stock compensation expense, and $0.3 million in costs related to certain litigation matters.

At September 30, 2018, there were outstanding borrowings of $38.0 million(net of discounts) against Affinion Group, Inc.’s revolving credit facility and $65.0 million of Affinion Group, Inc.’s credit facility was available for borrowing, after giving effect to the issuance of $5.0 million of letters of credit. [Total debt over $1.5bn].

Affinion Group, Inc. and Affinion Holdings entered into an amendment to Affinion Group, Inc.’s credit facility that permitted the release of $45.0 million of the net proceeds held in escrow from the sale of the Insurance Solutions business, of which $32.0 million will be available for working capital needs, and/or to make investments and capital expenditures, with the remainder to be used to prepay outstanding term loans, together with required prepayment premiums. In addition, the Company received a commitment letter from certain lenders to provide Affinion Group, Inc. with a second lien senior secured revolving credit facility. Upon completion of the series of transactions contemplated by these agreements, Affinion Group, Inc.will be provided with at least $50.0 million.

7/3/2018: Affinion Group sells insurance subsidiary, Affinion Insurance Solutions.

7/1/2015: Company negotiates settlement with Consumer Financial Protection Bureau for actions taken between 2010-2012 that misled consumers.

BDC Credit Reporter View

4/10/2019: Investing in Affinion Holdings and its Affinion Group subsidiary has been a long and winding road for the two related BDCs with exposure: PNNT and PFLT. As the Investment Highlights shows PNNT was involved as early as 2007. Since then Affinion – continually highly leveraged – has been financially sliced and diced multiple times and most recently this week. The two BDCs with $45mn currently invested at cost have both taken realized losses along the way; been repaid on a second lien debt investment and ended up with a non-income producing equity stake in the Company in recent years. Already at December 31 2018, the investment was valued at under $19mn. It’s hard to know how the new restructuring will be valued and whether will be given debt instruments as part of this Rubik’s cube. We would expect that PNNT and PFLT would write down the value of their positions given the massive dilution from the agreed debt for equity swap, but we can’t be sure. Looking forward, it’s unlikely that the value of the equity will ever revert to par cost, but who knows ? We expect the BDCs involved – who’ve doubled down and stuck to their guns over more than a decade- will continue to hold and hope. This journey is not yet over.

Highlights

4/10/2019: Company completes major recapitalization plan. Includes debt for equity swap and new debt to existing Affinion Holdings equity holders and other measures.

IVQ 2018: The two different equity tranches owned by PNNT and PFLT valued at $18mn.

IIQ 2017: All BDC exposure in equity: PNNT, PFLT and non-traded BDC with cost of $46mn and FMV of $23mn.

5/10/2017: Company undertakes another recapitalization, which includes repayment of all or some of the second lien debt.

IQ 2016: PNNT and PFLT book a realized loss for a portion of exposure converted from subordinated debt to equity. Total exposure at cost (including two non traded BDCs) aggregates $66mn.

11/2015: Company balance sheet restructured, with subordinated debt exchanged for equity. Here is what was said on CC:

This month, after extensive negotiations, Affinion completed an exchange offer in which the 14.5% notes converted into 25% of the company’s equity and a 13.5% notes converted into 75% of the company’s equity. In order to boost liquidity, there is $110 million rights offering of new international notes with a 25% of the common equity attached. The exchange offer and rights offering result in PNNT owning about 9% of the common equity… Our positions in the 14.5% and 13.5% notes were put on nonaccrual as of September 30. Our position in the Company’s second lien should be enhanced by the new deleverage balance sheet.

IIQ 2015: PNNT and PFLT added second lien debt with a cost of $15mn.

IVQ 2014: The valuation of the 2018 debt and equity was reduced, returning the Company to Watch List status.

11/13/2014 PNNT’s management said the following about the Company in its CC:

The biggest driver of the [unrealized] markdown was our position in Affinion, which is a company we’ve been involved with for, I don’t know, six years. We’ve invested in it over a long period of time in different formats. We feel very good about the deal.There was an exchange that was done six, nine months ago to really give the Company three, four years of cushion. So we do not see this as a near-term nonaccrual at all. Part of the mark was due to just weakness in the liquid markets. Part of it was there was a rumor that there was a large forced seller who was liquidating their portfolio. The management towards the end — after quarter end — reiterated their guidance for the full year in the paper has traded better since then.So we’re comfortable with the position, albeit we never like to see the market volatility like that.

IVQ 2013: Affinion restructured, as explained on PNNT CC in 2014:

So we owned a piece of Affinion paper, subordinated debt, that was exchanged into a new piece of subordinated debt [2018] at a higher coupon [14.5%], plus warrants in the company. So, what we had last quarter marked at about $0.58 on the dollar, the package of debt plus warrants on exchange was worth about $0.89 on the dollar. That was an exchange and that was not realized, that was unrealized in that exchange. So the original cost kind of continues on the new investment.

 Additionally, we moved up capital structure a bit and bought some of the paper that was higher in the capital structure, which still had a very healthy cash pay yield that we thought was relatively safe and provided a nice coupon. 

IIIQ 2013: Subordinated notes valued at 40% discount.

Mid 2012: The Company added to Watch List as valuation dropped.

2010: PNNT – and later PFLT- invested in a new 2015 subordinated loan for exposure of $38mn.

2007: PNNT initiates exposure with $18mn 2012 subordinated loan to Affinion Group Inc. The amount was increased later to $25mn at par.