Jan 10 (IFR) - HD Supply's new bond priced tight of talk
with an aggressive equity claw feature this week, underscoring
the improved view of the company and the surging demand for
Facing leverage that had not got down to the level at which
it could refinance with senior unsecured notes, the
Georgia-based industrial distribution company decided to come
out Wednesday with a senior subordinated note.
It turned out to be a savvy bet on a red-hot market.
HD Supply launched a US$650m eight-year non-call
three senior sub note offering to repay roughly US$600m of its
outstanding 13.50% notes at 103.375. BofA Merrill, Goldman
Sachs, Barclays, JP Morgan, Deutsche Bank, Credit Suisse, Wells
Fargo and UBS were joint leads.
As a comparable the leads used the company's 11.50% notes
due in 2020, which recently traded at 114 dollar price for a
yield of 8.375% before moving up to 116 (7.90% yield).
Whisper talk started at 11% and moved in to 10.75% area for
the official guidance. The deal ultimately priced through the
price talk level at 10.50%, and was upsized to US$950m.
The increase allows the company to fully repay all of the
2015 senior sub notes, and at eight years in maturity, the notes
push out the weighted average life of HD Supply's balance sheet.
The issuer was able to take advantage of the fact that
Ebitda was up about 35% in the last two months of 2012, compared
to the last two months of 2011. This Ebitda expansion also means
that the company could effectively deleverage in the near term.
Underwriters were also able to include an aggressive
IPO-specific special equity claw, whereby after July 31, 2013,
either 100% of the notes - or an amount up to 2/3 - may be
redeemed with IPO proceeds at 103 until January 31, 2014. (This
was initially whispered at 104, but leads were able to move it
in even tighter to 103).
After January 2014, the notes could be redeemed at a price
of 102 until July 31, 2014.
The claw greatly benefits the issuer, while capping the
upside that investors can achieve. The typical equity claw
amounts to par plus the full coupon (110.50 in this case).
This week's deal is the latest in an aggressive and
successful campaign started last year to address a near-term
Formerly a hung LBO after being acquired from Home Depot in
2007 by Bain Capital, Clayton, Dubilier & Rice and The Carlyle
Group, the company was facing roughly US$9bn in debt that was
coming due in the next three years.
A successful refinancing last April, when the company priced
a US$1.625bn two-part bond, set the stage for two follow-up
transactions in July and October worth US$1.3bn combined.
Last October's US$1bn senior unsecured offering, rated
Caa2/CCC+, repaid a portion of 13.50% senior sub notes due 2015.
That deal included a unique restricted payment feature to allow
the company to refinance the remaining portion of its senior
subordinated notes with more senior unsecured debt, subject to
total leverage being at or below 7.25x.
Altogether, last year's refinancings shifted the weighted
average life of the balance sheet from under three years to more
than six years.
Not surprisingly, the market is now taking a much rosier
view of the credit.
Even with the aggressive claw, Wednesday's deal drew demand
beyond expectations. It was heard there were roughly
US$2.85bn-US$3bn in orders, with existing holders involved as
well as new long-only accounts.
The new Caa2/CCC+ rated notes are performing strongly in the
secondary market, breaking higher at 101.75 and climbing to
103.50-104 on Thursday.
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