Market Alert: CD&R is Codifying the PetSmart / Chewy Maneuver in the New Sealed Air Bonds
Scott Josefsberg, J.D.: Head of U.S. High Yield Research - Covenant Review
30 March 2026
- How proposed covenant language could enable asset transfers that materially alter creditor protection.
- What the Restricted Payments carveout allows issuers to spin off under EBITDA based tests.
- Why leverage tests may fail to safeguard value when applied to minority or negative EBITDA businesses.
- How the Sealed Air transaction highlights risks embedded in modern sponsor driven bond documentation.
- Which implications CD&R Codifying the PetSmart Chewy Maneuver in Sealed Air Bonds may hold for future high yield covenant standards.
The Bottom Line™:
• A Restricted Payments carveout in the new Sealed Air Bonds would allow the issuer to spin off any business line that is less than 50% of EBITDA if it can meet a 5.5x or no worse first lien net leverage test pro forma, which could greatly enhance the Company’s ability to divert valuable assets to the sponsor.
• For example, this provision could allow the Company to pull a PetSmart / Chewy maneuver, allowing any negative EBITDA or pre-revenue business to be spun off to the sponsor at any time, regardless of the growth potential or dollar value of the business line.
• We urge investors to reject this provision and not accept enhanced flexibility that could potentially be used to strip significant value from the credit for the benefit of the sponsor.
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