Every Dog Has Its Day (And Its Covenants)

They say you can’t teach an old dog new tricks, but that’s exactly what happened in PetSmart’s recent $4.7 billion financing.

PetSmart—famous for pioneering one of the most replicated liability management tricks in credit history—just pulled the ultimate plot twist: it’s now got “comprehensive” liability management blockers in its new debt, including both J. Crew blockers and anti-Serta protections, as well as a pledge of the very Chewy stock that it moved out of creditors’ reach in 2019. 😂

Talk about coming full circle.

This isn’t just happening to PetSmart. These types of investor protections are becoming table stakes in high-yield lending.

Noetica’s data shows this on a macro scale:

➡️ J. Crew blockers were included in 38% of deals in Q2, up from 15% in Q1 2023.

➡️ Anti-Serta protections were included in 85% of deals in Q2—that’s almost all high yield deals that closed in Q2.

➡️ Meanwhile, namesake anti-Petsmart protections were included in 25% of deals, up from just 4% in Q1 2023.

I guess every dog has its day…now, how long until the rest of the market catches up?