School Specialty $100 million cash-to-zero convert talked at 3.25-3.75% yield, up 36-40%

By Ronda Fears

Nashville, July 14 - School Specialty Inc. launched $100 million of 20-year cash-to-zero convertible notes for pricing after the close with guidance for a 3.25% to 3.75% yield and 36% to 40% initial conversion premium.

Citigroup is lead manager of the Rule 144A deal.

The subordinated notes will pay a cash coupon for seven years, then become an accreting zero-coupon issue.

The notes will be non-callable for five years.

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

School Specialty said it would use proceeds to refinance bank debt and for general corporate purposes.

Standard & Poor's rated the new issue at B+, noting that the highly competitive and fragmented school supplies industry and risks associated with an aggressive acquisition growth strategy were offset in part by the company's market leadership, stable industry growth prospects and good cash flow.

School Specialty shares closed down $1.22, or 4%, to $29.37.

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