Party City: volatile helium costs forces retailer to rethink its business

The air has leaked from Party City’s balloons, in more ways than one. Filing for bankruptcy this month, Party City cited the usual factors troubling US retailers such as higher expenses for freight and labour. But the purveyor of banners and festive paper plates has a unique challenge: commodity risk.

Party City is best known for its helium balloons and the price of the gas has jumped. Worse, the company’s overall total debt load of $1.8bn far exceeds its current profitability. A plan by Party City’s bondholders to swap their debt for new equity will repair its balance sheet and help to insulate it from the worst effects of helium price swings.

A series of supply shocks in 2022 among suppliers in Russia, Qatar and the US has sent prices of helium — a byproduct of natural gas production — skyrocketing. Helium production in the US in part comes from the federal government’s Bureau of Land Management. Its facility in Texas was shut for months in 2022, which only added to the mayhem in the helium market. The US government selling price for helium in 2022 at one point neared $600 per thousand cubic feet, more than double the price in 2019.

Party City has more than 800 locations scattered across America. What its customers may not know is that it manufactures many of its goods. Its separate subsidiary, Anagram, is a balloon wholesaler.

In 2019, Party City recorded $2.3bn in revenue and $270mn in operating profit. It has not reported last year’s full result. Revenues should stay close to 2019 levels but operating profits will collapse to only about half that. The retail portion of Party City typically buys a portion of its helium on long-term supply contracts. But rising spot market prices have caused problems. Wholesaler Anagram had far more exposure to fluctuating prices.

Reduced debt and interest payments will allow Party City to invest further in its business. Among its options is selling buoyant balloons that do not require helium.