Verso Paper high yield bonds surged today as the issuer stepped forward with a distressed-debt uptier swap for the company’s subordinated notes and amended terms of a par-for-par uptier exchange launched last month on its second-lien FRNs. Most notable, the subordinated 11.375% notes due 2016 involved in the new exchange offer rallied 10 points, to a 70 context, sources note.
And the first-lien 11.75% notes due 2019 also advanced, rising three points, to 105.5/106.5, according to sources. Note the $345 million issue of BB-/Ba2 notes were issued regular-way last month, at 98.9, to yield 12%, via Credit Suisse, Citi, Barclays, and Goldman Sachs in an effort to refinance 11.5% secured notes due 2014.
However, the second-lien 8.75% notes due 2019 shed two points, to 52/54, due to the cram-down nature of the exchange, according to sources.
In today’s new deal, the company is offering holders of that $300 million 11.375% subordinated issue an opportunity to swap up into new 11.75% intermediate-lien (1.5-lien) notes due 2019. The tender cap is $157.5 million and exchange-notes issuance will top out at $104.7 million, thus consideration works out to 66.5% of par, including a $50 per bond early consents premium, according to company filings.
In addition, Verso will offer as cash payment of $110 per bond for early participation, and $60 after that deadline. Early participation is due 5:00 p.m. EDT on May 8, and the overarching deal expires 11:59 p.m. EDT on May 22, the filing shows.
Verso also amended the FRN uptier exchange launched last month to match the new exchange and extended the deadline by 10 business days, to 11:59 p.m. EDT on May 8. Changes include raising the coupon on exchange notes to the same as above, 11.75%, from 9.75%, revision of maturity to the same as above, to Jan. 15, 2019, from Feb. 1, 2019, and adding a stipulation that consummation is tied to completion of the subordinated-notes swap, the filings show (Details of the original transaction are available at LCD News, March 29: “Verso Paper offers uptier exchange for FRNs“). As of the original April 24 deadline, Verso says just $20 million of the $180 million outstanding of L+375 notes due 2014 joined into the deal, the filings show.
The new exchange notes are coming under Rule 144A, and Citi is handling the transaction, according to sources. Each exchange requires at least 50% participation, and the two exchanges are conditioned upon one another.
If consummated, market players expect the new exchange notes will trade just short of par. The big question is where the balance of subordinated notes – $142.5 million left outstanding if the deal is fully subscribed – would trade in the wake of the transaction, according to sources.
The exchange removes the covenant protections that bondholders previously enjoyed, which augers for it to trade down. But assuming these exchange offers are consummated, the stub paper is next to mature, which could inspire investors to hold out for a refinancing or an improved exchange offer, according to Imperial Capital analyst Kevin Cohen.
“The reason this is good for the company is you fully remove the overhang of the next to mature, and in addition to that you remove the majority of the second-to-mature,” said Cohen, who had given the 11.375% notes a buy rating prior to today’s announcement. “Now the company better positions itself as coated paper prices continue to improve in the second half of the year.”
All of the Verso bonds are trading much higher since the transactions launched. For reference, the recently issued first-lien notes were at 102/103, the second-lien 8.75% notes had been in a 50 context, the second-lien FRNs were trading at 69, and the subordinated notes were pegged in the high 40s, according to sources and trade data.
Alongside the new bond issue in March, the maker of magazine-grade paper also received commitments from lenders for a new $150 million ABL facility and a $50 million first-priority revolving facility. These will replace the existing $200 million revolver due Aug. 1, 2012, the company said. – Matt Fuller/Max Frumes