Armor Holdings $300 million overnight cash-to-zero convertible at 2.0% yield to maturity, up 37.5%

By Ronda Fears

Nashville, Oct. 25 - Armor Holdings Inc. launched after the close Monday $300 million of 20-year cash-to-zero convertible notes talked to yield 2.0% with a 37.5% initial conversion premium via sole underwriter Goldman Sachs & Co.

Orders will be taken for the issue until before the market opens Tuesday.

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

The notes include full dividend and takeover protection for holders.

There is no contingent conversion feature, but the notes do carry a 120% contingent payment threshold.

Armor Holdings said it will calculate dilution related to the issue in earnings reports with the Treasury stock method under current accounting standards. The affect of the conversion of the notes would only be included in the weighted average shares' outstanding balance and only upon exceeding the conversion price.

A $45 million greenshoe is available.

Armor Holdings is a Jacksonville, Fla.-based maker of security products and vehicle armor systems for law enforcement, military, homeland defense and commercial markets. Proceeds are expected to be used to finance the previously announced $92 million purchase of The Specialty Group Inc. and future acquisitions.

Standard & Poor's assigned a B+ rating to the issue and revised the company's outlook to stable from positive. The outlook revision reflects the higher debt leverage following the offering and expectations of an increased level of acquisition activity with the proceeds, according to S&P.

The issue will increase Armor Holdings' debt-to-capital ratio to 47% from 25% at Sept. 30, S&P said. Debt to EBITDA for the 12 months ended Sept. 30 will increase to 3.8x after the deal, versus 1.5x beforehand.

However, S&P said the company's financial ratios in 2004, aside from debt to capital, are likely to show material improvement from 2003 levels. S&P said the improvement is driven largely by strong sales in military products.

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