Hutchinson Technology amends exchange offer for 8.5% convertibles

By Angela McDaniels

Tacoma, Wash., July 1 - Hutchinson Technology Inc. amended and extended the exchange offer for its $122,206,000 of outstanding 3.25% convertible subordinated notes due 2026, according to a company news release.

The offer terms were amended as follows:

• A cash payment was added. Holders will receive $65 in cash in addition to $985 principal amount of new 8.5% convertible senior notes due 2026 for each $1,000 principal amount of 3.25% convertibles exchanged;

• The minimum tender condition was removed. Previously, the exchange offer was conditioned on the receipt of tenders for at least $40 million of convertibles; and

• A cap was added. The maximum principal amount of convertibles that may be exchanged is $60 million.

The expiration was extended to midnight ET on July 15 from 5 p.m. ET on July 15. It was previously extended from midnight ET on June 21.

As of midnight ET on June 21, holders had tendered $9,382,000 of the convertibles.

Based on a test involving trading levels, the new 8.5% convertibles were going to be treated as a qualified reopening for tax purposes. Because the exchange offer was extended, the test will have to be repeated.

If the test is again passed, the 8.5% convertibles issued in the exchange will be fungible with the $40 million of 8.5% convertibles issued in February, resulting in one issue instead of two smaller issues. The existing 8.5% convertibles were issued in exchange for 3.25% convertibles.

Tendering holders will not receive any net cash for accrued interest on their 3.25% convertibles. They will receive, however, interest on the 8.5% convertibles from Feb. 11 when the initial coupon payment is made on July 15.

The offer is subject to shareholder approval of the issuance of the 8.5% convertibles.

The conversion ratio of the 8.5% convertibles is 116.2790 shares of common stock for each $1,000 principal amount, compared with 27.4499 shares for the 3.25% convertibles.

The conversion price of the 8.5% convertibles is $8.60 per share, compared with the 3.25% convertibles' conversion price of $36.43 and the company's closing share price of $2.35 (Nasdaq: HTCH) on July 1.

The 8.5% convertibles are not callable prior to Jan. 15, 2015, except that beginning Jan. 15, 2013 they are callable if the closing price of the company's common stock is 150% or more of the conversion price for at least 20 trading days. The 3.25% convertibles became callable on Jan. 21.

The 8.5% convertibles are putable on Jan. 15, 2015, Jan. 15, 2016 and Jan. 15, 2021, compared with Jan. 15, 2013, Jan. 15, 2016 and Jan. 15, 2021 for the 3.25% convertibles.

The company said that subject to the satisfaction of some limited conditions, holders are able to convert their 8.5% convertibles at any time. In comparison, the 3.25% convertibles can only be converted under certain circumstances and then only at prescribed times.

Any conversion of the 8.5% convertibles will be settled in shares. When converted, the 3.25% convertibles are settled in an amount of cash equal to the lesser of the conversion value of the converted notes and the principal amount of the converted notes plus a number of shares representing the conversion value in excess of the principal amount, if any.

The company said the purpose of the exchange offer is to improve its financial flexibility by extending the first put option date of the convertibles and to reduce its overall debt.

The dealer manager is Citadel Securities, LLC (877 660-1735). The exchange and information agent is Global Bondholder Services Corp. (212 430-3774 for banks and brokers, others call 866 807-2200).

Hutchinson Technology makes suspension assemblies for disk drives and is based in Hutchinson, Minn.

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