Warner Music Group is refinancing part of the $2.21 billion in debt that Len Blavatnik's Access Industries used to finance its acquisition in 2011, according to a regulatory filing.
The world's third-largest music company kicked off a tender offer for bondholders to buy back two tranches of debt totaling $1.25 billion: $150 million in secured notes and $1.1 billion in secured notes, both paying 9.5% in interest and both due to mature in 2016.
The company hopes to take advantage of relatively low interest rates in debt markets and also extend out its payment period, according to people familiar with the company's strategy.
To achieve those aims it held a meeting with prospective lenders on Wednesday for a new debt offering, issuing $635 million in senior secured notes, due in 2020, and obtaining a $630 million term bank loan due in 2019, according to Moody's Investors Services.
It is also replacing its current undrawn $60 million revolving credit facility with a $150 million revolver due in 2017. Moody's assigned a Ba2 rating, which is non-investment grade and considered a moderate credit risk, to the new debt offerings.
The new debt offering will be funded with the cash raised from its debt buy-back.
If Warner Music is able to achieve its aim of lowering its quarterly interest payments that will help improve its cash flow outlook going forward, a key valuation metric for debt holders.
The music company's large debt load relative to its earnings means closer attention is paid to its ability to meet its debt obligations.
Warner Music released preliminary earning estimates on Tuesday, which said it expects covenant earnings before interest, taxes depreciation and amortization (EBITDA) to range from $460 million to $470 million for the three months to Sept 30.
Covenant EBITDA, which is a financial metric used to measure a company's overall ability to meet its obligations, excludes several expense metrics typically used and is therefore larger.
According to a company press release, Credit Suisse Securities (USA) LLC has been hired to manage the debt buyback. While the buyback offer is set to expire Nov. 14, investors have until Oct. 30 to tender their notes and receive full payment plus an incentive payment for turning the notes in before the latter date.