Reynolds upsizes bond deal senior tranche, talks notes at 8% and 10% area, seen pricing Tuesday

By Paul Deckelman

New York, July 25 - Reynolds Group Issuer LLC/Reynolds Group Issuer Inc./Reynolds Group Issuer (Lux) SA on Monday upsized to $2.5 billion their planned two-part offering of eight-year senior secured and unsecured notes, and high yield primaryside sources said price talk emerged on the deal, which is expected to price on Tuesday morning.

The sources said that a $1.5 billion tranche of senior secured notes is expected to yield in the 8% area, while a $1 billion tranche of senior unsecured notes was being talked in the 10% area.

The issuing entities' parent company - Auckland, N.Z.-based consumer food and beverage packaging products producer Reynolds Group Holdings Ltd. - announced that the senior unsecured tranche had been upsized to $1 billion from the $500 million originally shopped around, while the size of the senior secured piece was unchanged.

Reynolds, whose products include the well-known Reynolds Wrap aluminum foil, announced on June 17 that it would acquire Graham Packaging Co. Inc., a York, Pa.-based maker of customized blow-molded plastic bottles and jars, in a $4.5 billion transaction, including the assumption by Reynolds of Graham's net debt. Reynolds further announced in early July that it would line up $2 billion of senior secured term loan financing from its lenders and sell $2 billion of bonds, split into the senior secured and unsecured tranches.

The primaryside sources said that the bonds will be brought to market via joint book-running managers Credit Suisse Securities (USA) LLC, and HSBC Securities (USA) Inc. They were marketed to potential investors via a roadshow which began last Tuesday. Order books on the deal were scheduled to close on Monday afternoon, with pricing seen on Tuesday morning.

The sources said that both tranches come with four years of call protection and feature the standard three-year clawback for 35% of the issue, and both have 101% poison puts.

The secured notes come with the same guarantees and security as the Reynolds Group Issuer Entities' 6 7/8% senior secured notes due Feb. 15, 2021, while the unsecured notes are guaranteed by the same entities that guarantee the Reynolds Group Issuer Entities' 8¼% senior notes due Feb. 15, 2021.

Reynolds said that the net proceeds from the increase in the size of the bond deal will be used to repurchase any of Graham's existing senior notes that are tendered in connection with change-of-control offers at 101% of principal that will be made following the closing of the Graham acquisition.

Graham has outstanding $250 million of 8¼% senior notes due 2017 and $250 million of 8¼% seniors due 2018. It is currently tendering for those bonds, along with its $375 million of outstanding 9 7/8% senior subordinated notes due 2014, and is seeking noteholder consent to the elimination of the change-of-control provision. However, with the senior notes presently trading well above the $1,020 per $1,000 principal amount total consideration the company is offering, few, if any of those notes are expected to be taken out via the tender offer, which runs through Aug. 4, although Graham has structured the offer so that holders can consent to the indenture change without tendering their bonds.

Reynolds further said that any remaining net proceeds from the upsizing of the bond deal will be applied to repay borrowings coming due in the near-term, or to repay, repurchase or otherwise retire other indebtedness.

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