UPDATE 3-Regis to offer shares, notes to repay debt; stock sinks

* To offer 11.5 mln shares, $125 mln in convertible notes

* Sees Q4 charge related to UK store closures

* To lower fixed charge coverage ratio to 1.3

* Q4 sales $625 mln vs est $617.8 mln

* Shares plummet as much as 23 pct (Adds details, analyst comment, stock movement)

By Amitha Rajan

BANGALORE, July 6 (Reuters) - Hair-Salon operator Regis Corp (RGS.N) set plans for a dilutive common stock and notes offering, to pay down $267 million in debt and amended its credit facility seeking relief from certain covenants, sending its shares tumbling as much as 23 percent.

Regis has had to cut capital expenditures, close underperforming stores and sell its loss-making Trade Secret retail-product division, as its middle-income consumers reduce the frequency of visits to the salon amid the economic downturn.

The company, which had about 43 million shares outstanding as per its latest quarterly filing, said it intends to offer about 11.5 million shares and $125 million aggregate principal amount of convertible senior notes due 2014.

"I was a little surprised that they issued equity," Erika Maschmeyer, senior research analyst at Robert Baird & Co, told Reuters.

The analyst said while the equity-issue is dilutive, she believes the hair-salon operator is being cautious.

"I knew that they had been close on some of their debt covenants but they have been taking other corporate actions to try to minimize the risk of violating the covenant," she said.

As per the amendment, the company reduced its fixed charge coverage ratio -- used to show that a company can pay its fixed financing expenses -- to 1.3 from 1.5 times, lowering the borrowing capacity under the facility by $50 million to $300 million.

Regis expects coupon rate under the facility to initially increase up to 1.75 percent.

Maschmeyer, who has a "neutral" rating on the stock, said while the higer coupon rate was a negative, she expects it to be partially offset by the reduction in total debt.

The company said it expects total debt of $635 and $650 million at the end of fiscal 2009, below its prior target of $700 million. Regis' debt stood at $807 million as of Sept. 30, 2008.