Warner Chilcott's $1.5 Billion of Dividend Loans Would Pay Higher Interest

Warner Chilcott Plc, a maker of birth-control pills, offered to pay a higher rate than on its existing debt for $1.5 billion of loans to finance a shareholder payout, according to a person familiar with the negotiations.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. are arranging the debt with a proposed interest rate 4.25 percentage points more than the London interbank offered rate on both loans, said the person, who declined to be identified because the terms are private. That compares with a margin of as much as 3.5 percentage points over the lending benchmark on existing bank borrowings, according to data compiled by Bloomberg.

Warner Chilcott is leading companies including Blackstone Group LP-owned Airvana Inc. and Schaumburg, Illinois-based Global Brass & Copper Inc. in raising leveraged loans and high- yield, high-risk bonds as both debt rally more than the 2.09 percent the Standard & Poor’s 500 Index gained this year.

Rochelle Fuhrmann, a spokeswoman for Ardee, Ireland-based Warner Chilcott, didn’t return a phone call seeking comment.

Proceeds of the term loans and $750 million of unsecured notes will finance a $2.15 billion, or $8.50 a share, dividend, according to a July 30 company statement. Warner Chilcott said it expects to pay the dividend by Sept. 30.

Loan, Bond Rally

The S&P/LSTA US Leveraged Loan 100 Index gained 3.97 percent this year, while junk bonds returned 8.49 percent, according to the Bank of America Merrill Lynch US High Yield Master II Index. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

The company is seeking a 4-year, $500 million term loan A and a $1 billion term loan B due in 5.5 years, the person familiar with the talks said. A term loan A is sold primarily to banks, while a term loan B is mainly bought by non-bank lenders such as collateralized loan obligations, mutual funds and hedge funds.

In addition to the margin over Libor, the rate banks charge to lend to each other, term loan B will also have a 2.25 percent floor on the lending benchmark. Warner Chilcott may sell the institutional loan at 98.5 cents on the dollar, the person said, reducing proceeds for the company and boosting the yield for investors.

Lenders are also offered a one-year soft call protection of 101 cents, the person said, meaning that Warner Chilcott would have to pay a one cent premium over face value to refinance the term loan B in its first year.

Moody’s Ratings

The banks are hosting a lender meeting at 1:30 p.m. in New York, the person said.

Warner Chilcott said the transaction depends on an amendment to its existing credit facilities, which would allow the company to borrow more for the payout.

Moody’s said July 30 that it stood by Warner Chilcott’s corporate and senior secured credit facility rating of B1, four levels below investment grade, citing the company’s prior history of deleveraging.

Bank of America initiated negotiations Jan. 20 to lower interest rates on Warner Chilcott’s $2.95 billion of bank debt. Lenders led by Stanfield Capital Partners LLC and Oak Hill Advisors LP objected to the transaction on concern it would trigger a return to loose-lending standards.

In October, Warner Chilcott borrowed $1 billion in a term loan A with an interest rate 3.25 percentage points more than Libor. The financing, which also included a $1.95 billion term loan B with a margin of 3.5 percentage points over the lending benchmark and a 2.25 percent Libor floor, was used for the acquisition of Procter & Gamble Co.’s prescription-drug unit, according to Bloomberg data. The amendment would have reduced term loan B’s interest rate.

To contact the reporters on this story: Krista Giovacco in New York at Kgiovacco1@bloomberg.net. Emre Peker in New York at epeker2@bloomberg.net.

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