Bluestem Brands, Inc.

About

Bluestem Group Inc., a holding company headquartered in Eden Prairie, MN, operates multiple direct to consumer retail brands through its subsidiary Bluestem Brands. The Northstar Portfolio includes Fingerhut and Gettington, both of which are national multi-channel retail brands offering a broad selection of name brand and private label merchandise serving low- to middle-income consumers by offering multiple payment plans through revolving credit lines or installment loans offered by WebBank. The Orchard Portfolio consists of multi-channel brands that offer apparel, accessories, and home products for the boomer and senior demographic, generally considered age 50 and over and provide customers with the ability to obtain credit through a third-party private label credit card. Go forward brands include Appleseed’s, Blair, Draper’s & Damon’s, Haband, and Old Pueblo Traders. At the end of fiscal 2018, the Company has announced that it would be exiting from six legacy retail brands in fiscal 2019: Bedford Fair, Gold Violin, Norm Thompson, Sahalie, Tog Shop and WinterSilks. All of Sahalie’s inventory assortment is now and will continue to be offered through our Gettington Retail Brand. The remaining exited retail brands will be sold or liquidated”. Press Release

Corporate Highlights

4/12/2019: Company publishes IVQ 2018 results.

  • “The Company made the strategic decision to exit six of its eleven Orchard brands: Bedford Fair, Gold Violin, Norm Thompson, Sahalie, The Tog Shop and Winter Silks. In connection with this action, we recorded $8.9 million of restructuring and restructuring related charges.
  • Adjusted EBITDA was $74.6 million compared to $54.5 million in the fourth quarter of fiscal 2017, an increase of 400 basis points as a percent of net sales*. Excluding the impact from the adoption of Topic 606, Adjusted EBITDA was $60.7 million or 10.4% of net sales in the fourth quarter of fiscal 2019.
  • Compliant with lender covenants throughout and as of the end of the fourth quarter, net liquidity was $85.4 million compared to a covenant requirement of $40.0 million and lender leverage ratio was 2.99x compared to a covenant requirement of 4.50x”.

BDC Credit Reporter View

6/19/2019: We wrote the following in an update post: “Notwithstanding lower sales in the period compared to a year earlier, the company reported progress in “turning around” the business in several areas. Adjusted EBITDA was barely positive but that’s an improvement over ($12.6mn) a year earlier. Most importantly, from a credit standpoint the company was nowhere near triggering the several key metrics imposed by its senior lenders. Nonetheless, the burden of total debt has remained unchanged over the past several quarters, and its principal Term debt becomes due in late 2020. We have a CCR 4 Credit Rating, which remains unchanged. There are 4 BDCs with $29mn in exposure – all in the 2020 Term debt. In the IQ 2019, the unrealized depreciation was reduced in the BDC valuations and may receive a modest boost in the IIQ, based on these results. Nonetheless, the retailer is far from being out of the woods”.

4/12/2019: Bluestem Brands has been in turnaround mode for years and on our Watch List since IIIQ 2016. Despite various initiatives, including selling or closing business lines; cost cutting and other measures, the results have not shown up, leaving the Company close to breaching debt covenants. However, a first look at the latest results, suggest the Company may be on the mend based on an increase in Adjusted EBITDA, decent liquidity versus lender requirements and adequate debt to EBITDA at 2.9x versus 4.5x maximum allowed. However, this improvement may be the result of cutting marketing expenses, which will come back to bite profitability in the future. We’ll be reviewing the publicly available quarterly filings and reading the transcript of the Conference Call for further illumination. No change as yet in the Company’s Watch List status, but the gradual drop in the Company’s creditworthiness may have taken a turn for the better. We shall see.

Highlights

IIQ 2019: We reviewed latest results, which showed modest improvements. 

IQ 2019: BDC valuations decreased discount from (35%) to (25%) on improved financial results.

IVQ 2018: 4 BDCs with $29.5mn exposure, discounted by one-third. Highest in investment history.

IIIQ 2016: For valuation reasons added to Watch List. CCR 3.

IVQ 2014: New secured 2020 debt. Three BDCs involved with $19.2mn of exposure.

IVQ 2013: BDC exposure initiated.