Venator Group, a New York-based specialty athletic retailer, replaced $125 million of its outstanding $300 million bank debt with a convertible deal, refinancing only the remaining $175 million in the loan market. "The convertible market today is very deep and liquid, so we wanted to take advantage of that and at the same time rely less on the bank market, which isn't as deep as it once was," said Peter Brown, v.p. of investor relations at Venator. "We were able to convert something more temporary into something more permanent," said Brown, noting that the maturity on the notes is four years longer than on the bank debt. Brown explained the company will receive slightly more than the $300 million it refinanced as the $175 million credit facility was oversubscribed and raised to $190 million. The company now has a new three-year, $190 million credit facility in addition to $125 million in seven-year convertible outstanding notes. The notes have a coupon of 5.5% and convert to stock at a price of $15.806 or a premium of 23%, said Brown.
"We believe earnings growth prospects are very good and that we will hit the conversion premium," said Brown, explaining why he thought investor demand for the convertibles was adequate to get the deal completed. Brown added that the liquidity available in the market has been created by a convertible environment whereby conversion premiums have gotten wider and interest rates lower, prompting issuers to go to market. J.P. Morgan Chase was a lead on the expiring $300 million facility and was a lead on the new $190 million credit. Brown declined to be more specific about agents on the deal, but said the lead also was granted underwriting business on the notes in lieu of the reduced bank debt. Brown declined to be specific about new pricing on the facility, but said the company was able to attain a lower interest rate over LIBOR this time compared to the last deal because of the reduced size of the facility. Brown noted pricing is variable as it's tied to a grid based on the company's debt.