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Photo: Rafael Henrique/SOPA Images/LightRocket via Getty Images

BC Partners plans to disentangle pet supplies retailer PetSmart from online rival Chewy, via a recapitalization plan.

Why it matters: This reflects PetSmart's improved performance, driven largely by increased pet adoptions during the pandemic. It's also a tacit admission by BC Partners that its original investment thesis was flawed.

  • BC bought Chewy in 2017, in part by piling new debt onto existing portfolio company PetSmart, and then took Chewy public in mid-2019 while retaining almost total voting control.
  • PetSmart would be recapped with $1.3 billion in new equity and its $4.65 billion of debt would be refinanced (with pro forma leverage decreasing from 3.5x/5,6x to 3.2x/4.2x, per LevFin Insights).
  • Commitments are due next Thursday, although there's no guarantee this deal goes through.

The bottom line, via Bloomberg: "The transaction is likely to be seen more favorably by creditors compared to a 2018 deal in which BC Partners put a portion of Chewy’s equity outside the reach of PetSmart lenders."

  • "They argued that PetSmart was insolvent at the time of the transfer, and that the move was thus fraudulent. PetSmart eventually got a majority of its lenders to approve amendments to their documents to squash the dispute."

Go deeper

Biden transition names first Cabinet nominees

Photo: Justin Sullivan/Getty Images

President-elect Joe Biden on Monday unveiled his nominations for top national security positions in his administration, tapping former secretary of state John Kerry as his climate czar and former deputy national security adviser Avril Haines as director of national intelligence.

Why it matters: Haines, if confirmed, would make history as the first woman to oversee the U.S. intelligence community. Biden also plans to nominate Alejandro Mayorkas to become the first Latino secretary of the Department of Homeland Security.

Dan Primack, author of Pro Rata
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New deals in the COVID economy

Illustration: Sarah Grillo/Axios

COVID-19 is the macro horror of our lifetimes, and has destroyed or severely damaged countless businesses. But, like with most horribles, it also has created some opportunities.

Driving the news: Merck this morning announced an agreement to buy OncoImmune, a Maryland-based biotech that showed promising late-stage clinical results for a therapy that treats severe and critical coronavirus cases.

3 hours ago - Technology

Biden's openings for tech progress

Photo illustration: Eniola Odetunde/Axios. Photo: Win McNamee/Getty Images 

Item No. 1 on President-elect Joe Biden's day-one tech agenda, controlling the flood of misinformation online, offers no fast fixes — but other tech issues facing the new administration hold out opportunities for quick action and concrete progress.

What to watch: Closing the digital divide will be a high priority, as the pandemic has exposed how many Americans still lack reliable in-home internet connections and the devices needed to work and learn remotely.