Spectrum Wins Its Lowest Rate on $1 Billion of Bonds for Buyout

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HRG Group Inc.’s Spectrum Brands Holdings Inc. is borrowing at its cheapest rate in the bond market to finance its takeover of the maker of Armor All.

Spectrum issued $1 billion of 5.75 percent notes due 2025 to partly finance its $1.4 billion purchase of Armored AutoGroup Parent Inc., according to data compiled by Bloomberg. That’s the lowest coupon the consumer-products company has paid on a bond, Bloomberg data show. Spectrum had already raised $500 million after selling new shares Wednesday to finance the acquisition. And HRG, which owns 53 percent of Spectrum, used $140 million from a $300 million bond sale on Monday to purchase some of that stock.

HRG’s revelation May 9 that it found accounting flaws at Armored didn’t deter the multi-stage fundraising. Moody’s Investors Service, which placed its ratings for Spectrum on review for downgrade after it announced the acquisition, concluded Thursday the takeover will “improve” the company’s credit. It left Spectrum’s grade unchanged.

“They’re doing it in a capital structure-friendly way,” Noel Hebert, a Bloomberg Intelligence analyst, said by telephone. “From a creditor’s standpoint you always like to see equity as part of the deal because it shows they’re paying attention to maintaining their credit profile and the capital market access to debt.”

Relative Yield

Spectrum issued the notes at par to yield 0.59 percentage points less than what investors demand to hold debt with similar maturities and ratings, according to Bank of America Merrill Lynch indexes.

The bonds have been rated B2, five levels below investment grade, by Moody’s. The ratings company ranks Spectrum one level higher at B1.

The purchase of the consumer-products company comprised primarily by Armor All and STP engine oil, will be the largest by Middleton, Wisconsin-based Spectrum since a 2012 acquisition of Stanley Black & Decker Inc.’s home unit. Spectrum owns a broad range of consumer brands in products from bug repellents to facial-grooming products.

Accounting shortcomings at Armored include failure to properly monitor shipments, review contracts and control inventory, HRG said in an earlier regulatory filing. While Armored is seeking to fix the accounting flaws, HRG may conclude after completing the deal “that these remedial measures were insufficient” which could adversely impact the business’s financial condition.

“Spectrum Brands was aware of and reviewed these deficiencies as part of its due-diligence process and determined that they were not material,” Jamie Tully, a spokesman for the buyer with Sard Verbinnen & Co., said in an e-mail May 8.

Armored will become a unit of Spectrum after the deal is completed. HRG is 23 percent owned by Richard Handler’s Leucadia National Corp.

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