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City Brewing has launched a deal with support of certain existing creditors that would provide more breathing room to the privately held beverage maker, according to 9fin sources.

The transaction involves shuffling assets into a non-guarantor restricted subsidiary, raising new money at that restricted subsidiary, and pursuing a non-pro rata exchange of existing debt. All of the company’s existing revolver lenders and around 73% of the existing first lien term loan holders are on board so far, according to details in a presentation to lenders viewed by 9fin.

Some lenders have previously voiced concerns about the beverage manufacturer's significant capital spend, which weighed on cash flow amid a slow improvement in earnings. Should the deal close, City Brewing would boost its liquidity by $96m from $10m, according to the presentation.

Under the proposed transaction, certain brewery assets, which will be released from the collateral package for the existing debt, are being (or will be) dropped down into a non-guarantor restricted subsidiary (BrewCo), and these assets will secure:

A new $120m S+325 first-out revolver due 2027 at BrewCo which will eliminate the financial covenant under the existing revolver

A $115m new money S+625 first-out term loan due 2028 at BrewCo, pari passu with the new revolver and backstopped by the ad hoc group for a 4% PIK fee. The new money term loan will have a 2% upfront PIK fee/OID for all participants; new money proceeds will be on-lent by BrewCo to City Brewing as a first lien intercompany loan

An exchange of the $829m first lien term loan into (i) an S+350 cash first-out exchanged term loan, and (ii) an S+350 cash plus 1.5% PIK second-out exchanged term loan, both at BrewCo

The ad hoc group will exchange 50% of its existing term loan holdings into the first-out exchanged term loan and 50% into the second-out exchanged term loan, both at 97 cents (or at a 3% discount to par).Other existing first lien term loan holders that (i) participate in the new money can exchange 40% of their existing holdings into the first-out tranche and 60% into the second-out tranche, both at 85 cents (15% discount to par), and (ii) do not participate in the new money are excluded from the deal.

The new money term loan and first-out and second-out exchanged tranches will have a senior claim on the assets transferred to BrewCo and the intercompany loan and, through a secured guarantee, a first lien claim on the brewery assets at the existing guarantors. The first-out and second-out exchanged tranches will also have covenants that are materially tighter than those in the existing credit agreement.

The transaction is targeted to close on 24 April.

City Brewing is co-owned by Charlesbank Capital Partners, Oaktree Capital Management, Blue Ribbon Partners and company management. It is being advised by Evercore and Sullivan & Cromwell, while the ad hoc group of lenders was advised by Gibson Dunn and Perella Weinberg, according to sources.

Representatives at City Brewing declined to comment, and those at Evercore and S&C didn’t immediately respond to requests for comment.

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City Brewing advisors approach lenders on non-pro rata exchange deal

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