Market Alert: CD&R is Codifying the PetSmart / Chewy Maneuver in the New Sealed Air Bonds

CD&R Codifying the PetSmart Chewy Maneuver in Sealed Air Bonds

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

Download the Full Report to gain insights on:

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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