Western Digital talks $1 billion six-year convertible notes to yield 1% to 1.5%, up 40% to 45%

By Abigail W. Adams

Portland, Me., Jan. 29 – Western Digital Corp. plans to price $1 billion in six-year convertible notes after the market close on Tuesday with price talk for a coupon of 1% to 1.5% and an initial conversion premium of 40% to 45%, according to a market source.

Bank of America Merrill Lynch and J.P. Morgan Securities are acting as lead bookrunners for the Rule 144A deal, which carries a greenshoe of $100 million.

The notes are non-callable for three years then callable subject to a 130% hurdle. There are no puts and standard dividend protection.

The convertible notes will be settled in cash, shares or a combination of both at the company’s option.

Western Digital expects repurchase up to $500 million of company shares concurrently with the pricing of the convertible notes, according to a company release.

The convertible notes are being offered alongside a $2.3 billion offering of senior notes due 2026. RBC Capital Markets, Mizuho Securities and Wells Fargo Securities are acting as bookrunning managers for the senior notes due 2026.

In connection with the offerings, Western Digital plans to obtain a $5.022 billion term loan A-1 facility maturing in 2023. If the full amount of the convertible note offering is not completed, Western Digital may increase the size of the new term loan by up to $1 billion, according to a company release.

Proceeds from the new term loan A-1 facility will be used to settle the company’s existing $4.022 term loan A due 2021. Western Digital also expects to extend the maturity of its existing revolving credit facility to 2023 and will seek to amend the terms to its facilities.

Proceeds from the convertible notes, together with proceeds from the new term loan, will be used to redeem all of the company’s outstanding 7.375% senior secured notes due 2023.

Proceeds from the 2026 senior notes together with cash on hand will be used to fund a cash tender to purchase all of the outstanding 10.5% senior notes due 2024.

Western Digital expects to reduce its outstanding debt by $1 billion. After completion of the related transactions, cash on hand is expected to be reduced by $2.4 billion.

Western Digital is a San Jose, Calif.-based computer data storage company.

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