By Ronda Fears
Nashville, May 8 - Starwood Hotels & Resorts Worldwide Inc. sold $300 million of 20-year convertible senior notes at par to yield 3.5% with an 83.96% initial conversion premium in a Rule 144A transaction with joint lead managers Banc of America Securities, Deutsche Bank Securities and JPMorgan.
The issue was repriced by the underwriters to buyers at 98.75, according to a buyside source.
Because it was a "bought deal," another buyside source said, there was no price talk in advance of the deal, which emerged a couple of hours after the market close. He said it appeared that orders would be taken through the open Friday.
"I don't see anything here to get excited about, an implied yield of 3.59% at the offer price on the three-year put, and we're basically talking about a bond. I mean, it's a BB credit," said one of the buyside sources, who runs a large outright fund.
"We've been very, very quiet on these new issues lately. It used to be I'd get involved and then flip them the next day, pick up a point or two. Now, you could lose a couple of points right out the gate. It's not worth it."
On Tuesday, Standard & Poor's cut Starwood's ratings to junk, due to the weak economy and challenging environment for the lodging industry created by the SARS outbreak as well as the war in Iraq.
Starwood plans to cut its $5.5 billion debt by $1.1 billion through asset sales this year, but S&P said the credit would not improve enough to justify an investment-grade rating, given the pressures that pushed the company to a loss in first quarter.
S&P said it did not expect the lodging industry to show signs of a turnaround before 2004.
Starwood said it plans to use proceeds to repay debt under its existing revolving credit facility and for general corporate purposes.
Terms of the deal are:
Issuer: Starwood Hotels & Resorts Worldwide Inc.
| Issue: | Convertible senior notes
|
| Joint lead managers: | Banc of America Securities, Deutsche Bank Securities and JPMorgan
|
| Amount | $300 million
|
| Greenshoe: | $60 million
|
| Maturity: | May 23, 2023
|
| Coupon: | 3.5%
|
| Price: | Par
|
| Conversion premium: | 83.96%
|
| Conversion price: | $50.00
|
| Conversion ratio: | 20
|
| Call: | Non-callable for 3 years
|
| Put: | In years 3, 5, 10 and 15
|
| Contingent conversion: | 120%
|
| Contingent payment: | 120%
|
| Expected ratings: | Moody's: Ba1
|
| S&P: BB+
|
| Settlement: | May 16
|
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