U.S. corporates are getting into a variation on traditional accelerated share repurchase plans, known as flexible or discounted ASRs. Dealers are also keen to tout the structures which allow them to decide--within a pre-determined period--when the contract ends, and take advantage if the share price moves in their favor during this period. In turn, dealers pass on some of this expected saving to the corporate when it enters the agreement.
In the last few months, Goldman Sachs has structured a trade for FirstMerit Corp., and Citibank, acting through Citigroup Global Markets as agent, put together a similar structure for Apria Healthcare Group. BNP Paribas is also providing discounted ASRs and most major firms are believed to be on the bandwagon, taking advantage of the current trend for share buy-backs.
"We're absolutely seeing more of these transactions," said Janet Kim, managing director and head of strategic equity at BNP Paribas in New York. "Discounted transactions are appealing for companies because they are able to buy back stock at a discount to the market price over the term of the contract." The discount is written into the upfront cost of contracts in exchange for banks having the flexibility to end contracts early or extend them longer, structurers said. "Because of the flexibility a bank is enjoying, it can pass some economic savings to the company," said one structurer.
Banks recently started offering caps and collars (DW, 1/6), by which companies sell downside risk to receive upside protection, establishing floors and ceilings on the spread over the upfront price they pay to buy back shares. Flexible ASRs can be paired with collars or stand alone. "Most large ASRs done recently at least have a cap or a collar or are discounted or both," said one structurer.
In the case of Apria, according to its third quarter report, the deal had a flexible contract term of up to 60 trading days that delivered the company a value weight average price discount of USD0.42 per share on 7,337,526 shares at an initial purchase price of USD23.83. Amin Khalifa, executive v.p. and cfo at Apria, did not return a message by press time and spokesmen for Goldman, Citi and First Merit were not available for comment.
