Walter Industries $125 million convertible talked at 3.5-4.0%, up 35-40%

By Ronda Fears

Nashville, April 13 - Walter Industries Inc. launched $125 million of 20-year convertible notes talked to yield 3.5% to 4.0% with a 35% to 40% initial conversion premium for a full day of marketing.

Morgan Stanley & Co. and Banc of America Securities are joint bookrunners of the Rule 144A deal, which is slated to price after the close Wednesday.

Co-managers of the deal are SunTrust Robinson Humphrey, BNP Paribas and Credit Lyonnais.

The senior subordinated notes will be non-callable for seven years with puts in years 10 and 15.

There is a 130% contingent conversion trigger and 120% contingent payment trigger.

Also, there is a conversion trigger if the rating on the issue falls below its initial credit rating by Standard & Poor's or Moody's Investors Service. Moody's has rated the issue B1.

Holders of the convertible notes will have dividend protection for common stock cash distribution over 3 cents per share per quarter.

A $25 million greenshoe is available.

The Tampa, Fla.-based homebuilder intends to use proceeds, together with available cash or borrowings under its senior secured bank revolver, to prepay in full the $113.8 million outstanding term loan portion of its senior secured credit facilities plus fees and accrued interest on that loan.

In addition, Walter Industries has earmarked about $10 million of proceeds to purchase shares sold short by convertible note purchasers.

Walter Industries has also agreed to use some $25 million to purchase shares owned by certain affiliates of Kohlberg Kravis Roberts & Co., which together currently hold around 33.3% of Walter Industries stock, at an agreed price of $12.75 per share.

Any remaining proceeds or borrowings will be used for general corporate purposes including additional share repurchases of up to $25 million, which could be privately negotiated purchases of shares from KKR affiliates.

There is a 90-day lockup associated with the convertible offering for Walter Industries employees and directors, as well as KKR affiliates who own the stock.

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