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BWAY Said to Shift Mix of $1.87 Billion Junk Financing

Aug. 8 (Bloomberg) -- BWAY Corp., the Platinum Equity LLC-controlled paint container and aerosol can maker, secured $1.87 billion in funding it was seeking to refinance debt and pay a dividend after shifting the mix of the financing.

A unit of BWAY raised the size of a loan to $1.22 billion and cut the amount of high-yield bonds, according to two people with knowledge of the transaction. BWAY sold $650 million in junk bonds, down from $770 million, said one of the people, who asked not to be identified because the terms are private.

The changes come on the heels of the biggest outflow on record from U.S. junk bond funds with investors withdrawing $7.1 billion in the week ended Aug. 6, according to data provider Lipper. Funds that invest in loans lost $1.5 billion during the same time.

“If it were me, I would go after the cheapest debt,” Robert Matz, an analyst at New York-based Covenant Review, said in a telephone interview.

The company issued 9.125 percent notes due 2021 that yielded 715 basis points, or 7.15 percentage points, more than similar-maturity Treasuries, according to data compiled by Bloomberg. The offering was priced at 99.36 cents on the dollar.

BWAY’s loan will pay lenders 5.5 percent, compared with an earlier offer of 5.25 percent, Bloomberg data show. The debt was sold at 99 cents on the dollar.

Buyout Option

If the firm is acquired six to 18 months after the debt sale, the bonds can be redeemed at 103 cents on the dollar, rather than the more expensive makewhole price, one of the people said. This structure will make it easier for another private equity firm to buy BWAY, according to Valerie Potenza, the head of high-yield research at Xtract Research LLC.

“That obviously does suggest there is some transaction that’s being contemplated,” Potenza said in a telephone interview. “That doesn’t show up in many deals.”

Dan Whelan, a spokesman for Platinum, declined to comment. Michael Chandler, a spokesman for Atlanta-based BWAY, didn’t respond to telephone and e-mail messages seeking comment.

The financings will be used to redeem outstanding debt and fund a $200 million payout to shareholders, including BWAY’s private equity owner.

Platinum, founded by the owner of the National Basketball Association’s Detroit Pistons, bought BWAY from Madison Dearborn Partners LLC, a Chicago-based private equity firm, in 2012.

Standard & Poor’s lowered BWAY’s corporate credit rank to B- from B on July 31, citing the increased leverage from the offering. The rating firm assigned a CCC rating to the proposed notes, a grade denoting substantial risk and an expectation of “negligible recovery” in the event of default, according to a report led by analyst Henry Fukuchi.

BWAY’s frequent use of debt for dividends and its acquisition of Ropak Packaging last year hasn’t given them the ability to reduce debt relative to earnings, Fukuchi said in a telephone interview.

To contact the reporters on this story: Craig Giammona in New York at cgiammona@bloomberg.net; Adam Janofsky in New York at ajanofsky4@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Faris Khan, John Parry

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