Affinion begins exchange offers, consent bids for three note series

By Angela McDaniels

Tacoma, Wash., April 3 – Affinion Group Holdings, Inc. announced the beginnings of private exchange offers and consent solicitations for its $16,111,533 of 13¾%/14½% senior secured PIK/toggle notes due 2018, Affinion Group, Inc.’s $475 million of 7 7/85% senior notes due 2018 and Affinion Investments, LLC’s $22,609,200 of 13½% senior subordinated notes due 2018.

The consent time is 5 p.m. ET on April 14, and the exchange offers will end at 5 p.m. ET on May 5.

For each series of notes, holders are being offered either (1) senior notes due 2022 issued by Affinion Group plus new warrants to purchase shares of Affinion Holdings or (2) cash.

For each $1,000 principal amount of notes tendered by the consent time, holders may elect to receive either (1) $1,000 principal amount of new notes and warrants to purchase 3.37 shares or (2) cash. The cash amount is $930 for the 7 7/8% notes, $700 for the PIK toggle notes and $880 for the 13½% notes.

For each $1,000 principal amount of notes tendered after the consent time, holders may elect to receive either (1) $990 principal amount of new notes and warrants to purchase 3.34 shares or (2) cash. The cash amount is $920 for the 7 7/8% notes, $690 for the PIK toggle notes and $870 for the 13½% notes.

Holders will also receive accrued interest up to but excluding the settlement date. For holders who elect to receive new notes and warrants in exchange for their notes, this interest will be paid in the form of new notes and new warrants. For holders who elect to receive cash in exchange for their notes, this interest will be paid in cash.

For the first 18 months, Affinion Group may elect to pay interest on the new notes (1) entirely in cash at a rate per year of 12½% or (2) entirely in kind at a rate per year of 14%, provided that interest for the first interest period beginning on the settlement date will be payable entirely in kind.

After 18 months, Affinion Group may elect, or may be required, to pay interest on the new notes (i) entirely in cash at a rate per year of 12½%, (ii) as a combination of cash at a rate per year of 6½% and PIK interest at a rate per year of 7½% or (iii) as PIK interest at a rate per year of (x) 14¾% for any interest payment period ending on or prior to the date that is the 30-month anniversary of the settlement date or (y) 15½% for any interest payment period ending after the date that is the 30-month anniversary of the settlement date.

Consent solicitation

Concurrently with the exchange offers, the companies are soliciting consents to amendments to reduce from 30 days to three business days the minimum notice period for optional redemptions.

In addition, Affinion Group is soliciting consents to remove substantially all of the restrictive covenants and some of the default provisions in the indenture governing the 7 7/8% notes.

Holders who tender their notes must also consent to the amendments.

Approval of the proposed amendments requires the consent of holders of a majority of the outstanding principal amount of each series of notes, not including notes held by affiliates of Affinion Holdings, Affinion Group or Affinion Investments.

The completion of the exchange offers is conditioned on, among other things, the tender of at least $237,975,000 principal amount, or 50.1%, of the 7 7/8% notes.

The company said the purpose of the exchange offers and related consent solicitations is to extend the maturities of the notes from 2018 to 2022, thereby giving Affinion additional flexibility to execute its strategic initiatives and grow its business.

Support agreement

On March 31, a group of noteholders entered into a support agreement under which they agreed to tender their notes in the exchange offers.

The group holds about $237.5 million, or 50%, of the 7 7/8% notes and includes, among others, affiliates or managed funds of Elliott Management Corp. and Franklin Mutual Advisers, LLC.

Also on March 31, affiliates of Elliott Management, Franklin Mutual Quest Fund, affiliates of Empyrean Capital Partners, LP and Metro SPV LLC, an affiliate of ICG Strategic Secondaries Advisors LLC, entered into an investor purchase agreement under which they agreed to purchase a principal amount of new notes and new warrants that would yield enough cash proceeds for Affinion to repurchase any notes tendered for cash consideration in the exchange offers. This is referred to as the initial investment.

If Affinion Holdings, Affinion Group or Affinion Investments exercises its option to redeem any notes not tendered in the exchange offers, under the investor purchase agreement, the company has the option to obligate the investors to purchase a principal amount of new notes and new warrants that would yield enough cash proceeds to redeem any notes not tendered in the exchange offers. This is referred to as the follow-on investment.

Any follow-on investments would be made within 90 days from the consummation of the exchange offers, subject to the company delivering a notice of optional redemption to the noteholders and the tender of at least 90% of the aggregate principal amount of the applicable series of notes in the exchange offers.

Credit agreement

Also on March 31, Affinion Group entered into a commitment letter with HPS Investment Partners, LLC for a $110 million senior secured revolving credit facility, which would be reduced to $80 million on the one-year anniversary of the settlement date, and a $1.34 billion senior secured term loan.

Both the revolver and the term loan will mature in 2022.

Affinion Group intends to use the proceeds to, among other things, refinance existing debt under its existing credit facility and to redeem all of the outstanding 7½% cash/PIK senior notes due 2018 of Affinion International Holdings Ltd.

HPS Investment Partners, LLC will act as administrative agent and collateral agent for the lenders and as lead arranger, syndication agent, documentation agent and bookrunner.

The information and exchange agent for the exchange offers is D.F. King & Co., Inc. (800 848-3416, 212 269-5550 or affinion@dfking.com).

Affinion is a Stamford, Conn., provider of marketing loyalty products.

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