The Wall Street Journal reported that it is becoming more difficult for Wall Street to unload risky debt and that has affected Apollo Global Management’s purchase of Shutterfly Inc.
Barclays PLC, Citigroup Inc. and other investment banks have been working to raise approximately $2 billion of debt for Apollo’s purchase of Shutterfly (parent of school picture giant Lifetouch) but investors have become more cautious and are viewing Shutterfly as risky debt. Investors are reportedly worried about Shutterfly’s relatively low credit rating, its business model, declining sales of photo prints industry wide, and the relatively low barrier to entry for larger companies like Amazon or Google.
The bottom line is that the banks have had a hard time raising capital for this deal. It means the banks, which normally sell off the debt, ended up having to use approximately $280 million of their own capital and had to reduce the price of the debt they did sell to entice investors to buy. Apollo had to come up with $300 million of its own as well, reportedly a bigger commitment than what they wanted.
Does this mean that Apollo will be placing more pressure on Shutterfly and Lifetouch to produce positive financial results faster? Are school pictures, photo prints, personalized photo products and gifts truly a “risky business”?
Mark Schoenrock – PSPConsulting