A bank meeting was held Thursday at the Parker Meridian to launch syndication of the financing to back Reynolds American's $3.5 billion acquisition of Conwood, the second largest manufacturer of smokeless tobacco products in the U.S. The deal is expected to be received well by the market, offering new paper and decent pricing. "We'll commit to that I'm sure," said one portfolio manager, speaking before the bank meeting. "It will go."
Lehman Brothers, JPMorgan, Citigroup and GE Capital are leading the financing, which consists of a five-year, $500 million revolver and a six-year, $1.55 billion term loan. The revolver includes an accordion feature to allow it to increase by up to $250 million. Pricing is LIBOR plus 2% on all tranches, though initially there was talk it would come out at LIBOR plus 2 1/4%. There is also a $1.864 billion bridge in the market that will be taken out with a private offering of $1.65 billion senior secured notes due 2013, 2016 and 2018.
According to a filing with the Securities and Exchange Commission, the bank debt will contain covenants including a maximum debt to EBITDA ratio, a minimum fixed-charge coverage ratio and a limitation on capital expenditures. Standard & Poor's rated the loan BBB- and the banks were still waiting for Moody's Investors Service to affirm its ratings.
Reynolds American is the parent company of R.J. Reynolds Tobacco Co.; Santa Fe Natural Tobacco Co.; R.J. Reynolds Global Products and Lane Ltd. Based in Memphis, Tenn., Conwood is owned by the Pritzker family and had 2005 annual net sales of more than $450 million and an operating income around $250 million. The company operates in all five segments of the U.S. smokeless tobacco industry. It will operate as a subsidiary of Reynolds American.
Previously a Reynolds spokesman said Lehman Brothers and JPMorgan had historical relationships with the company. Lehman is a lead M&A advisor on this deal and is also involved in the company's current $486 million revolver, on which JPMorgan is an administrative agent (CIN, 5/1). A spokeswoman could not be reached before press time for this story.