Beats Electronics LLC, the headphone maker founded by music producer Jimmy Iovine and rapper Dr. Dre, withdrew plans to borrow as much as $650 million in loans due to market conditions, according to a person with knowledge of the deal.
Beats last week reduced the size of a term loan it was seeking to $350 million to $400 million, which would have funded a dividend, said the person, who asked not to be identified because the information is private. The financing was canceled as prices of leveraged loans fall from a six-year high.
Companies from Beats Electronics to Carl Icahn’s auto-parts supplier Federal-Mogul Corp. (FDML) have pulled financings in recent days as the Federal Reserve signals plans to ease its stimulus. Prices of U.S. leveraged loans fell to 97.57 cents on the dollar on June 21, from as high as 98.88 on May 9, according to the Standard & Poor’s/LSTA 100 Leveraged Loan Index.
“Issuers that can wait to complete their deal will likely wait for a period with less volatility in the hopes to secure more favorable terms,” Darin Schmalz, a director at Fitch Ratings in Chicago, said in a telephone interview. “Recent macro volatility is a result of concerns about rising interest rates and the market absorbing the news of the Fed taper as well as increased global macro concerns.”
The Fed will begin phasing out its $85 billion in monthly bond purchases later this year as long as the U.S. economy performs in line with its projections, Fed Chairman Ben S. Bernanke said June 19 at the end of a two-day meeting of the Federal Open Market Committee.
Proceeds of the loan would have refinanced $225 million of existing bank debt maturing in July and for general corporate purposes, with $400 million available for additional specified purposes, including distributions to shareholders, acquisitions and investments.
The Santa Monica, California-based company increased the proposed interest rate on the debt to 4.75 percentage points more than the London interbank offered rate with a 1.25 percent minimum, from 3.25 percentage points with a 1 percent floor initially offered.
Federal-Mogul canceled plans to refinance $3.05 billion of debt that would have included a $1.75 billion term loan, a $550 million revolving line of credit and $750 million of bonds, according to a June 10 regulatory filing.
Sarah Joyce, a spokeswoman for Beats Electronics, didn’t immediately respond to an e-mail seeking comment about the transaction.
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