PetSmart seeks to quell concerns from creditors about an asset shuffle that could put some parts of the struggling pet-supply retailer beyond their reach.

(Bloomberg)—PetSmart Inc. pegged the value of its Chewy unit at $4.45 billion as it seeks to quell concerns from creditors about an asset shuffle that could put some parts of the struggling pet-supply retailer beyond their reach.

The assessment came in documents posted privately for investors in the closely held company on Tuesday, according to a person with knowledge of PetSmart’s finances. The person said the figure doesn’t include cash on the balance sheet of Chewy, the online discounter that PetSmart acquired last year.

Citigroup, the administrative agent for PetSmart’s term loan, had sent a letter to the company requesting further information on the Chewy transfer, people with knowledge of the matter said. The retailer’s legal counsel, Kirkland & Ellis, provided supplementary data to certain secured lenders in response to inquiries from Citigroup’s counsel, Latham & Watkins.

Prices for PetSmart’s bonds had been plunging ever since the Chewy purchase, which was financed in part with $2 billion of debt. Investors have speculated PetSmart would sell or spin off parts of itself or Chewy to its private equity owners, a group led by BC Partners, in ways that could deprive creditors of a fair recovery if the company ran into financial trouble. Debt prices have regained some ground after the asset transfers turned out to be smaller than some investors had feared.

In response to the asset shuffle, PetSmart lenders organized and enlisted help of their own. A group of investors holding both bonds and term loans is working with law firm Paul Weiss, while a group of secured lenders chose Arnold & Porter Kaye Scholer as legal advisers. Both groups have been trying to determine whether debt documents permit the transfer of Chewy shares and if defaults occurred, two of the people said.

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In the posted documents, PetSmart said no event of default currently exists, according to one of the people. A representative for PetSmart told Bloomberg the documents are private and declined to elaborate on the matter.

While PetSmart declined to answer many of Citigroup’s questions directly, the company told lenders in the document that it received equity of an unrestricted subsidiary that was valued equally to the Chewy equity it contributed to the asset shuffle, one of the people said.

PetSmart chose not to answer all of the questions, saying the credit agreement doesn’t require the pet retailer as the borrower to provide information to Citi as the agent with regards to “confidential corporate governance matters,” according to one of the people.

The company, which has more than $8 billion of debt outstanding, is working with Kirkland & Ellis as counsel, which drafted the documents on behalf of the retailer, the people said. PetSmart is also working with Houlihan Lokey as financial adviser. Representatives for Houlihan declined to comment, while representatives for Kirkland & Ellis and Latham & Watkins didn’t immediately respond to requests for comment.

PetSmart is No. 50 in the Internet Retailer 2018 Top 1000.

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