Amazon's abandoned acquisition leaves iRobot in Carlyle debt straightjacket

iRobot

31/01/2024 11:00

By Greg Roumeliotis
       Jan 31 (Reuters) - The collapse of iRobot's  IRBT.O 
$1.4 billion sale to Amazon  AMZN.O  will test the cash-strapped
robot vacuum cleaner maker's ability to repay a $200 million
loan it took from private equity firm Carlyle Group  CG.O  last
year.
    The Roomba vacuum maker said on Monday it would lay off 31%
of its roughly 1,130 employees and cut costs to save $150
million or more, as the deal's demise in the hands of European
antitrust regulators left it confronting plunging revenue and
soaring losses.
    Regulatory filings shed light on how the terms of the
Carlyle loan that iRobot accepted last July to tide itself over
during the deal's regulatory review are weighing on its finances
and have added to the pressure to cut costs.
    The Bedford, Massachusetts-based company said on Monday its
agreement with Carlyle requires it to set aside $75 million out
of a $94 million deal break-up fee it will receive from Carlyle
towards repaying the loan.
    The loan runs to July 2026 and charges iRobot an annual
interest rate of as much as 9% plus the Secured Overnight
Financing Rate (SOFR), totaling 14.3%, the filings show.
    Private equity firms like Carlyle charge more than banks to
lend to companies, because they are more open to negotiating
custom terms and willing to take on more risk. Yet even by that
measure, Carlyle's loan is pricey.
    Its spread of 900 basis points compares to an average spread
of 599 basis points in direct lending deals of private equity
firms with large companies, Loan Pricing Corporation data
showed. 
    To ensure a sweet deal, Carlyle negotiated a minimum
guaranteed return, so that even if iRobot prepays the loan, the
private equity firm will have made 1.4 to 1.7 times the loan's
principal, the filings show.
    Carlyle also restricted iRobot's ability to spend money
before the loan is repaid. The loan terms require iRobot to
maintain a minimum of $250 million in cash, accounts receivable
and inventory, the filings show.
    The company had double that amount in hand as of the end of
September, according to its most recent earnings disclosure. But
it also said losses grew to $241 million in the first nine
months of 2023 from $202 million in the year-ago period.
    An iRobot spokeswoman said the company had no comment beyond
its public disclosures. A Carlyle spokeswoman declined to
comment.
    The iRobot loan is one of several direct lending deals that
private equity firms jumped on last year as banks retrenched
amid underwriting losses caused by the rapid rise in interest
rates.
    While most direct lending deals pertain to leveraged
buyouts, Carlyle, which managed $150 billion in credit assets as
of the end of September, has carved out a niche for lending to
non-private equity owned businesses. Its recent loan deals
include Park County, the intellectual property owner of media
franchises South Park and Book of Mormon.
    iRobot's shares soared during the COVID-19 pandemic as
stay-at-home consumers splashed out on its fancy vacuum
cleaners. But as the novelty fizzled and inflation soared, sales
dropped and its finances deteriorated. The stock ended at $14.25
on Tuesday, its lowest since 2009, giving iRobot a market value
of about $400 million.     
    iRobot, whose Chief Executive Colin Angle stepped down on
Monday and was replaced on an interim basis by Chief Legal
Officer Glen Weinstein, has said that the cost cuts, together
with improvements in its marketing strategy and product
offerings, will help it return to profitability.

 (Reporting by Greg Roumeliotis in New York; Editing by Richard
Chang)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))