Reed Elsevier accepts for exchange $77.17 million of 7.75% notes

By Marisa Wong

Madison, Wis., Oct. 24 - Reed Elsevier Group plc subsidiary Reed Elsevier Capital Inc. announced the early settlement results of the private offer to exchange its outstanding 7.75% notes due 2014 and its outstanding 8.625% notes due 2019 for up to $600 million principal amount of new 3.125% notes due 2022 and cash.

As of 5 p.m. ET on Oct. 22, the early participation date, $77,174,000 principal amount of 7.75% notes had been tendered and accepted, and $43,469,000 principal amount of new 3.125% notes will be issued in exchange for those 7.75% notes.

In addition, $220,658,000 principal amount of 8.625% notes have been tendered thus far. The final amounts of 7.75% notes and 8.625% notes accepted for exchange will be determined following the expiration of the exchange offer.

The exchange offer began on Oct. 9 and will expire at midnight ET on Nov. 5. Tenders may no longer be withdrawn.

The subsidiary announced pricing for the exchange offer on Tuesday.

The total consideration for each $1,000 principal amount of 7.75% notes tendered by the early participation date and accepted for exchange is $1,086. The total payment comprises $563.91 principal amount of new notes having a value of $556, plus $530 in cash.

The total payment for each $1,000 principal amount of 8.625% notes tendered by the early participation date and accepted for exchange is $1,342.93, equivalent to $1,209.86 principal amount of new notes having a value of $1,192.93, plus $150 in cash.

The total payment for each series of notes includes an early participation premium of $50 in cash.

Holders who tender 7.75% notes or 8.625% notes after the early participation date will receive the exchange payment, which is the total payment less the early participation premium.

The company will also pay accrued interest to the applicable settlement date. The settlement date for early tendered notes was Oct. 24, and the final settlement date will fall on the second business day following the expiration date.

The 7.75% notes will be accepted with priority over the 8.625% notes. The amount of 8.625% notes to be exchanged will equal the difference, if any, between the $600 million offer cap and the amount of 7.75% notes tendered.

If the amount of 8.625% notes tendered exceeds the cap - the exchange offer cap less the amount of tendered 7.75% notes - then the 8.625% notes will be accepted on a pro rata basis.

Pricing determination

As previously announced, the total consideration for each $1,000 principal amount of old 7.75% notes is equal to (a) a principal amount of new notes equal to $1,000 multiplied by $556 divided by the new notes price plus (b) $480 in cash plus (c) an early participation premium of $50 in cash.

The new notes price is equal to the discounted value on the applicable settlement date (for the exchanged notes) of the remaining payments of principal and interest per $1,000 principal amount of new notes through their maturity date. The price is based on the yield on the 1.625% U.S. Treasury security due Aug. 15, 2022 and a fixed spread of 150 basis points. The new notes price was calculated at 2 p.m. ET on Oct. 22.

For the 8.625% notes, the total consideration per $1,000 of old notes is (a) a principal amount of new notes equal to $1,000 multiplied by an exchange ratio plus (b) $100 in cash plus (c) the $50 early participation premium.

The exchange ratio for the 8.625% notes is equal to the quotient of (a) the 8.625% notes price minus the $100 cash component minus the early participation premium divided by (b) the new notes price defined above.

The 8.625% notes price is equal to the discounted value on the final settlement date (for the exchanged notes) of the remaining payments of principal and interest per $1,000 principal amount of 8.625% notes through their maturity, using a yield equal to the sum of the 1.625% U.S. Treasury reference yield plus a fixed spread of 80 bps. The 8.625% notes price was also calculated at 2 p.m. ET on Oct. 22.

Reed Elsevier had separately announced that it priced a cash offering of $250 million 3.125% notes on Oct. 9. New notes issued under the exchange offer will form a single series and be fungible with the notes sold in the cash offering.

As noted before, the exchange offer is subject to the settlement of the cash offering for the 3.125% notes and 3.125% notes being issuable on the early settlement date and final settlement date. The exchange offer was also conditioned on the reference yield being at least 1.35% on the determination date. However, the exchange offer is not conditioned on the tender of any minimum principal amount of old notes or the issuance of any minimum principal amount of new notes.

D.F. King, Inc. (800 488-8095 or 212 269-5550) is the information agent.

Reed Elsevier Capital is a wholly owned U.S. subsidiary of Reed Elsevier Group, a London-based publisher and information solutions provider.

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