Reynolds Group Said to Seek Lower Rate on $2.6 Billion Loan

Reynolds Group Holdings Inc., the maker of Reynolds Wrap aluminum foil, is seeking to reduce the rate it pays on $2.6 billion of loans, according to a person with knowledge of the transaction.

The company is proposing to pay interest at 3 percentage points to 3.25 percentage points more than the London interbank offered rate on a $2.21 billion term piece due in December 2018, compared with 3.75 percentage points more than Libor on the debt, which matures in October 2018, said the person, who asked not to be identified because the terms aren’t set.

Reynolds joins companies including Delta Air Lines Inc. that are replacing loans once call protection, or the restriction to repay the debt, either weakens or is lifted. While these deals reduce interest expense for borrowers they lower income for investors that have poured almost $60 billion this year into loan mutual funds, according to Bank of America Corp.

“When the market heats up, it’s common to see borrowers on larger deals with better credit quality reduce call protection to six months from one year,” Justin Smith, head of research at Xtract Research LLC in Westport, Connecticut, said in a telephone interview. “They could probably get the deal done without any call protection, but it’s more headache to negotiate it out all together.”

Joseph Doyle, a spokesman at Reynolds Group, didn’t immediately reply to an e-mail seeking comment.

Reduced Protections

In the five months ended Sept. 30, the number of credit agreements with a six-month call protection exceeded deals which had similar clauses applying for one year, according to an Oct. 9 report from Xtract. That makes it easier for borrowers to replace higher interest debt without paying a penalty to investors.

Reynolds, which obtained the loan in September 2012 with 12 months of call protection of 101 cents, is offering lenders six months of soft-call protection at 101 cents on this refinancing, the person said, meaning it would have to pay a one cent premium over face value to refinance the term loan in its first six months.

The Auckland-based company also is seeking to lower the interest rate on a 297 million euro ($399.7 million) term portion to 3.25 percentage points to 3.5 percentage points more than the lending benchmark, compared with 4 percentage points it currently pays, the person said. The loan will expire in December 2018, compared with October 2018.

The lending benchmark on both loans will have a 1 percent minimum, the person said. Lenders are offered the debt at par.

Credit Suisse Group AG is arranging the financing and was scheduled to host a call with lenders today at 11 a.m. in New York, the person said. Investors must submit commitments to the loan by 5 p.m. on Nov. 21.

Delta Repricing

Delta Air Lines is seeking to lower the rate it pays on $1.34 billion term loan due in April 2017, according to data compiled by Bloomberg. The company is seeking to pay interest at 2.75 percentage points more than Libor with a 0.75 percent minimum on the lending benchmark, down from 3.25 percentage points more than Libor with a 1 percent minimum currently.

JPMorgan Chase & Co. is arranging the transaction, which offers lenders six months of call protection of 101 cents on the dollar. The company in February obtained the original financing, which carried call protection of 101 cents for six months, Bloomberg data show.

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