Skechers’ LBO Financing Sees Strong Demand Despite Leverage and Tariff Risks

Skechers’ roughly $6 billion leveraged loan and high-yield bond deal backing its buyout by 3G Capital received strong demand from buyside participants interested in the offering despite some concern over high leverage, according to sources.

The footwear brand priced its €1.25 billion seven-year term loan at Euribor+350 bps and 99.75 OID, while the U.S. dollar $1.555 seven-year billion term loan B priced at SOFR+325 bps and 99.75 OID, according to sources. Both loan tranches priced tighter than its initial talk. Meanwhile, a €1 billion senior secured note priced at 5.25% and $2.2 billion in 10% senior unsecured PIK toggle notes were also in the package.

Despite high demand from investors for the U.S.-dollar high-yield bond, at about 10x oversubscribed, lead JPMorgan canceled the tranche in favor of upsizing the loans because of the lower cost of capital and more sources of capital in the European market, according to a source close to the deal. Another reason for doing so, according to one investor, is that they wanted to reduce its amount of high-yield debt.

Several investors added that Skechers’ leverage of about 4x was considered “too high” for a BB-rated credit, which could be another reason the financing package was adjusted.

Skechers’ deal also added J.Crew protections during the syndication process. Covenants by Octus’ legal analysts completed an analysis of the documentation for Skechers’ deal, based on a range from 1 to 5, with 5 being the least protective for lenders and 1 being the most protective, giving the deal a 4.32 rating. Document changes like this are often associated with struggling syndications, but according to sources, there was healthy demand for Skechers’ deal, thanks in part to 3G Capital’s reputation as a supportive sponsor.

Additionally, Skechers is the first apparel and footwear borrower to tap the primary market since President Donald Trump’s tariff policies were announced in early April. As Octus highlighted in its earlier coverage on the company, Skechers and other American apparel brands rely heavily on contract manufacturers in China and Taiwan, which have been hit with some of the steepest tariff increases.

One banker following Skechers’ deal said that the market has been “watching it closely,” explaining that it could become a benchmark for future syndications in the apparel sector.

Although Skechers is vulnerable to tariffs, a second banker noted that the company has the ability to reroute Asian inventory to its fulfillment centers in Central and South America, which helps it to mitigate high fees.

Skechers’ financing comes amid a week of substantial consumer discretionary deals. Sizzling Platter, notably, priced its $500 million high-yield bond and $505 million leveraged loan package financing its acquisition by Bain Capital this week after document changes were made to appease investor pushback, Octus, formerly Reorg, reported.

Market participants looking at Skechers’ offering had expressed mixed opinions about the deal earlier this week, weighing the sneaker brand’s strong position in budget footwear against its significant tariff risk, Octus reported.

One high-yield investor noted that despite its relatively high leverage, Skechers is an investable credit with a strong brand in a growing and resilient category. Because of this, the investor said, Skechers should be able to delever over time. Additionally, the investor added that Skechers has a decently strong top line but has some idiosyncratic risks pertaining to tariffs and reduced free cash flow with interest expenses. Still, they noted that there is some “low-hanging fruit” for cost-cutting, adding that 3G Capital tends to be strong operationally, particularly with implementing cost cuts.

Skechers trades on the New York Stock Exchange under the ticker SKX and was quoted today at about $63.06 a share, according to Yahoo Finance.

3G Capital agreed to pay $63 per share in cash for all outstanding shares of Skechers, representing a premium of 30% to Skechers’ 15-day volume-weighted average stock price. The transaction includes the option for existing shareholders of Skechers to instead receive $57 in cash and one unlisted, nontransferable equity unit in a newly formed, privately held company that, following the closing of the transaction, will be the parent company of Skechers.

Skechers will become a privately held company upon completion of 3G Capital’s transaction, according to a press release. In Skechers’ first-quarter 2025 earnings, its first-quarter sales increased 7.1% as a result of a 7.2% increase internationally and a 6.9% increase domestically.

Greenhill, a Mizuho affiliate, acted as exclusive financial advisor, and Latham & Watkins acted as lead legal counsel to Skechers. JPMorgan Securities LLC acted as exclusive financial advisor, and Paul Weiss acted as lead legal counsel to 3G Capital, with Kirkland & Ellis LLP serving as financing legal counsel.

JPMorgan and 3G Capital declined to comment. Skechers did not respond to a request for comment.