Energizer Selling Junk Debt as Shaving Unit Leaves Bunny Behind

Energizer Holdings Inc. is marketing a 10-year bond issue at a premium to similarly rated obligations to help it finance its spinoff into a stand-alone battery business.

The maker of batteries and Schick razors is tapping the market for $600 million of bonds that may yield as much as 5.875 percent, according to a person with knowledge of the matter, who asked not to be identified because they weren’t authorized to speak about it. The bonds were rated Ba3, the highest junk grade, by Moody’s Investors Service.

The average yield of bonds rated from BB- to BB+ and due in about 10 years is 5.38 percent, according to Bank of America Merrill Lynch index data.

The securities will be obligations of the new Energizer Holdings, which is being spun off from the original company, as management separates its household-products and personal-care units. The latter business will change its name to Edgewell Personal Care, and the new Energizer will pay it $1 billion as part of the separation, to be funded in part by the note sale, according to Standard & Poor’s, which rates the spinoff BB, two notches below investment grade.

“The market is discounting Energizer owing to the reduced scale and diversification of the business,” Bloomberg Intelligence analyst Noel Hebert said by telephone. “The deal is an efficient way for the company to split its capital structure, with some of the proceeds going to de-lever” the parent company, he said.

‘Secular Decline’

A “slow secular decline” in Energizer’s battery division, known for its indefatigable pink bunny, comes as consumer products are increasingly commoditized and usage shifts toward rechargeable technologies, according to Moody’s.

Household products, which include lighting goods as well as the batteries, have contributed a decreasing amount to Energizer’s overall revenue, accounting for 41 percent of the company’s $4.45 billion in revenue last year, down from 52 percent in 2010, Bloomberg data show.

“Energizer will be highly dependent upon cost cutting to offset the impact of higher stand-alone costs going forward,” Moody’s analysts led by Nancy Meadows wrote in a May 11 rating note.

The spinoff echoes capital raising techniques used by companies from Kraft Foods Inc. to Windstream Holdings Inc. to finance tax-free company splits with debt while borrowing costs remain relatively low.

Following the split, St. Louis, Missouri-based Edgewell will retain Chief Executive Officer Ward Klein. Its products include Wilkinson blades, Playtex tampons, Hawaiian Tropic sun-care products and Wet Ones moist wipes, according to a May 11 regulatory filing.

Bank of America, JPMorgan Chase & Co. Citigroup Inc. and Mitsubishi UFJ Financial Group Inc. are underwriting the notes.

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