Forest City holders swap $178.7 million notes for 7% convertibles

By Angela McDaniels

Tacoma, Wash., March 4 - Forest City Enterprises, Inc. issued $170 million of new 7% series A cumulative perpetual convertible preferred stock in exchange for $178.7 million principal amount of its senior notes in separate, privately negotiated exchange agreements, according to a company news release.

Holders exchanged $51.2 million of 3 5/8% putable equity-linked senior notes due 2011, $121.7 million of 7 5/8% senior notes due 2015 and $5.8 million of 6½% senior notes due 2017 for $50.7 million, $114.4 million and $4.9 million of convertibles, respectively.

The amount of senior notes exchanged represents approximately 32.2% of the $555.1 million total principal amount that was outstanding of the three series of notes.

The company also issued an additional $50 million of convertibles for cash under separate, privately negotiated purchase agreements.

The convertibles have a liquidation preference of $50.00 each.

The initial conversion price is $15.12, which is a 20% premium over the $12.60 (NYSE: FCE-A) closing price of the company's class A common stock on Wednesday.

Prior to March 9, 2013, the company can mandatorily convert the convertibles if the daily volume-weighted average price of its class A stock is 150% of the conversion price or more for 20 out of 30 consecutive trading days. Holders will also receive a make-whole payment.

After March 9, 2013, the convertibles are callable at par at any time.

Forest City expects to use the proceeds from the convertibles to defray costs associated with the exchanges, issuance and related equity call hedge transactions and for general corporate purposes.

The net effect of the equity call hedge transactions, from the company's perspective, is to approximate an effective conversion price of $18.27 per share, a 45% premium.

The closing of the exchanges and the issuance are expected to occur Tuesday.

Forest City is a Cleveland-based real estate company.

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