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[video] Party City Celebrates IPO Filing

NEW YORK ( The Deal) --  Party City Holdco, the party supplies and costumes retailer formerly known as Party City Inc., filed for an initial public offering Tuesday, according to a regulatory filing.

The Elmsford, N.Y.-based company had $500 million as a fundraising goal, which is likely to be a placeholder for filing purposes. Proceeds from the IPO will be used to repay debt, as well as for working capital and general corporate purposes, the filing said.

Private equity firm Thomas H. Lee Partners LP acquired a nearly 70% stake in Party City in June 2012 from fellow PE firms Advent International Corp., Berkshire Partners LLC and Weston Presidio. The deal valued the company at nearly $2.7 billion.

Advent continues to hold a nearly 24% stake in Party City, the filing said.

At the time it acquired the stake, Thomas H. Lee had sunk $584 million in equity into the company.

Last summer the company offered $350 million in 8.75%/9.50% pay-in-kind toggle notes to fund a dividend to its private equity backers.

Dividend recaps backed by PIK toggle notes can often be a harbinger of an IPO, as in the case of Burlington Stores (BURL). Before its October public market debut, the company in February issued $350 million of those instruments.

For the 12 months ended Sept. 30, 2013, the company said it had revenue of nearly $2 billion.

For the nine months ended Sept. 30, 2013, Party City generated revenue of about $1.3 billion, Ebitda of approximately $84 million and adjusted Ebitda of nearly $146 million.

For the fiscal year ended Dec. 31, 2012, the retailer had revenue of nearly $1.9 billion, which was about the same for the previous year, while Ebitda was $142 million in 2012, down from $260 million in 2011. Adjusted Ebitda for fiscal 2012 was $292 million, up from $275 million the year before.

Despite improving financials, Party City has substantial debt obligations.

The company has total debt of nearly $2.4 billion, which is 16.9 times trailing Ebitda and 8.2 times adjusted Ebitda for the year ended Dec. 31, 2012, and cash of nearly $13 million. The debt to Ebitda ratio will likely decrease, however, as in the first nine months of 2013, Ebitda already surpasses all of last year at $146 million, but the multiple will still likely be high.

Party City was founded in 1947 as an importer and wholesaler of party supplies. Today's company is the combination in 2005 of Amscan Holdings Inc., a wholesale operation, and Party City Corp., a retailer. The company operates stores in about 880 locations, including roughly 215 franchised stores, in the U.S. and Canada.

Underwriters for the IPO include Goldman, Sachs & Co., Bank of America Merrill Lynch, Morgan Stanley & Co. LLC, JPMorgan Securities LLC, Barclays Capital Inc., Credit Suisse Securities LLC and Deutsche Bank Securities Inc. Legal advisers for the offering include Ropes & Gray LLP and Latham & Watkins LLP.

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