 |
||||||
| Tuesday, February 9, 2010 |
Contact Us
|
 RSS
|
|||||
|
|
| |
|||
|
||||||
|
||||||
|
|
ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
|
|
|
|
November 16, 2008 12:01 AM ET
STEVE BLONDY R.H. Donnelly's CFO is paying 68 cents on the dollar
Since October, at least eight companies—including yellow pages publisher R.H. Donnelley and apparel maker Hanesbrands—have sought to repurchase their term loans at a discount from banks and other noteholders. These companies see a chance to reduce their leverage and possibly turn a profit in the process, given how far below par much of their paper is trading. While debt buybacks are common in a downturn, the number of would-be repurchasers in recent weeks is striking. It’s unusual to see so many in the leveraged loan market, where even issuers with ample cash are seeing the value of their loans plummet. “In the past, when you had a general economic downturn, those companies who are in distress did not have the ability to buy back their debt because they were running out of cash,” said Jeffrey Dunetz, a partner with law firm Mayer Brown. “This is really a new phenomenon.” Lenders, which have to sign off on buybacks, are less than thrilled with the development, in part because they’re suspicious that borrowers might be doing debt repurchases to circumvent restrictions in their loan agreements. Note holders have also been wary of accepting discounted tender offers. Just two of those eight firms have actually managed to execute a debt repurchase: R.H. Donnelley and retailer Rent-a-Center. One tender offer, from the consultant Booz Allen Hamilton, was rejected by note holders last month. On Thursday, Hanesbrands rescinded its buyback offer after it failed to pass muster with lenders. And at least two other issuers—real estate firm LNR Property and media company Entravision Communications—have sweetened their bids. Buybacks can be complicated. Where the loan agreement stipulates that all lenders sign off, rather than just 51%, there is little chance of success. There is the risk of tripping loan covenants, if paying off debt cuts cash. Also, rallying lenders can be difficult if a loan has been syndicated to multiple parties. “A lot of agent banks or initial arrangers aren’t actually holding the debt,” said Mike Simonton, director in Fitch Ratings’ corporate group. “Getting the consensus could prove challenging for some of these highly syndicated deals.” When Entravision’s buyback proposal looked like it might stall, the company took the unusual step earlier this month of offering a fee of $350,000 to appease lenders. “As the deadline approached, it wasn’t clear that there was enough momentum to get [the proposal] over the finish line,” said Christopher T. Young, Entravision’s executive vice president, treasurer and chief financial officer. “We just decided to give them an incentive.” His firm won approval to repurchase up to $75 million of discounted term debt through the end of 2009. Mr. Young said the rationale for doing so is straightforward. “It’s the pricing in the secondary market,” he said. “If the banks are collectively valuing my debt in the secondary market at 67 cents on the dollar, then I’ll be more than happy to take the debt off their hands at that price.” Despite some of the hurdles facing a buyback, the success of the R.H. Donnelley and Rent-a-Center launches ensures that even more companies will attempt them in the months ahead, industry experts say. The recession is also driving a push to reduce debt. At least three companies, including Entravision, have recently had their buyback plans green-lighted. The other two are baked goods seller Fresh Start Bakeries, and Manor Care, a nursing home operator, according to Standard & Poor’s LCD News, which tracks the leveraged loan market. As of last Thursday, lenders had yet to sign off on buyback proposals from LNR Property and the transmission supplier Allison Transmission. R.H. Donnelley, of Cary, N.C., has been leading the buyback charge after winning approval on Oct. 21 to repurchase $400 million of its term loans at a discount. The company has executed two rounds of term loan buybacks since then, paying $7.4 million for notes with a face value of $21.5 million in October, recognizing a gain of $13.6 million, according to regulatory filings. And last week, R.H. Donnelley wrapped up a tender offer of $20 million for $29.4 million in term loans, offering 68 cents on the dollar, according to LCD News. Even before that deal, R.H. Donnelley had already been reaping the benefits of its bond-buyback initiative: In the third quarter, the firm booked a gain of $72.4 million by purchasing some $165 million worth of notes at 49% of their face value, according to SEC filings. R.H. Donnelley CFO Steve Blondy said in a conference call earlier this month that the company targeted notes due in 2016 and 2017 “just because the price was so attractive…. As we got further into the quarter, [those notes] got considerably cheaper, and so we took advantage of that.” In the third quarter, R.H. Donnelley’s 8.875% notes due in 2016 fell from 58.38 cents on the dollar on July 2 to 34 cents on Sept. 29. A company spokesman didn’t return a call for comment. Retailer Rent-a-Center wasted no time after winning approval on Nov. 4 to spend $75 million to purchase paper over the next six months. The plan stipulates that the issuer can make no more than three tender offers at a minimum of $10 million each, according to LCD News. A day later, the Plano, Texas-based retailer launched an offer for $25 million of its term loans priced at 79 cents and 82 cents on the dollar. A company spokesman didn’t return a call for comment. Other recent buyback attempts have gone less smoothly. The consultant Booz Allen Hamilton got the cold shoulder after floating an offer to buy back $50 million of its term loans at 87 cents on the dollar late last month. The offer failed after no investors tendered their paper to the McLean, Va.-based firm, according to LCD News. A spokesman for Booz Allen didn’t return a call seeking comment. LNR Property’s second attempted buyback offer was in limbo last week, even after it shrunk the size of its potential buyback and raised the offering price. LNR Property, which is based in Miami, is offering to purchase up to $100 million of term debt at 60 to 65 cents on the dollar, with an additional provision to buy up to $500 million in debt through May 2009. Its earlier offer, which failed to gain approval, sought to purchase up to $600 million in term loans at 50 cents to 55 cents. Loyola University finance professor Tom Nohel said debt buybacks follow upheavals in the economy. The early 1990s saw a spate of repurchases after the market was slammed by the bankruptcy of Drexel Burnham Lambert. In early 1991, R.H. Macy repurchased about $300 million of its bonds at about 42% of face value. “If you buy back shares you’re leveraging up,” said Mr. Nohel. “The push now is to lever down.” FW
|
|
|
|
Latest News
• Reversal? Stanford advisers sue the SEC
March 5, 10:52 AM EST
• Third of companies not complying with new tax reporting rule
March 4, 4:25 PM EST
• Regulators aware of problems at First National for six years: audit
March 4, 3:31 PM EST
• Influential advisory group to look at fair-value, off-balance sheet accounting
March 4, 4:16 PM EST
• In a first, NY State hopes to sell bankrupt insurer
March 4, 3:59 PM EST
CRAIN'S BENEFITS OUTLOOK 2009
SPECIAL REPORT
MOST POPULAR
|
MORE ANALYSIS
Crain Financial Group:
InvestmentNews |
Pensions & Investments |
Workforce Management
Copyright ©2010 Crain Communications Inc
All rights reserved.
Privacy Policy |
Terms & Conditions