Heritage Insurance to sell $125 million 20-year convertibles to yield 5.375%-5.875%, up 30%-35%

By Stephanie N. Rotondo

Seattle, Aug. 9 – Heritage Insurance Holdings Inc. plans to conduct a $125 million Rule 144A offering of 20-year convertible notes in connection with its planned merger with NBIC Holdings Inc., the company said in an 8-K filed with the Securities and Exchange Commission on Wednesday.

Price talk is for a yield of 5.375% to 5.875% and an initial conversion premium of 30% to 35%, a market source reported.

Citigroup Global Markets Inc. is the bookrunner.

There will be a 15% over-allotment option.

Conversions will initially be settled in cash. Once shareholders approve the issuance of stock related to the deal, conversions will be settled with a combination of stock and cash.

The bonds are non-callable for five years. However, if the NBIC acquisition is not completed by June 8, 2018, Heritage can redeem the issue in its entirety at 101% of par plus accrued interest and 75% of any increase in the conversion value.

Holders can put the bonds at years five, 10 and 15, or upon a fundamental change, at par.

Heritage is buying NBIC for $210 million. That will consist of proceeds from the convertible offering, as well as $85 million of cash on hand.

If the convertible deal is unsuccessful, Heritage must find alternative financing by the 105th day following the merger agreement date. If other financing is not available, NBIC can terminate the deal and be paid a termination fee of $12.5 million.

In addition to funding the cost of the merger, Heritage also plans to use proceeds to repurchase up to $40 million in stock via a repurchase program.

Heritage Insurance is a Clearwater, Fla.-based reinsurance company.

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