Alaris refinancing to include stock, revolver, could include junk bonds

By Peter Heap

New York, April 30 - Alaris Medical Inc. said its planned debt refinancing will likely include the issuance of up to 10 million shares, a new revolver and possibly the issuance of junk bonds.

The San Diego medication safety company obtained approval from its shareholders on Wednesday for the stock issuance.

It will now go to the board for their support, said William C. Bopp, senior vice president and chief financial officer, during the company's earnings conference call.

Alaris filed a $550 million shelf registration with the Securities and Exchange Commission on April 17 saying it would use proceeds to refinance some or all of three series of notes.

Notes to be taken out are Alaris' 11 1/8% senior discount notes due 2008 and Alaris Medical Systems' 11 5/8% senior secured notes due 2006 and 9¾% senior subordinated notes due 2006.

Alaris had $177.5 million of the 11 1/8% notes, $170 million of the 11 5/8% notes and $180 million of the 9¾% notes outstanding for a total of $527.5 million as of Dec. 31, 2002, according to another SEC filing.

The shelf registration covers debt securities, common stock, preferred stock, depositary shares, stock purchase units, stock purchase contracts and warrants; the securities may be issued as convertibles.

On Wednesday Alaris said it intends to offer some or all of the 10 million shares under the shelf registration. Alaris stock closed at $9.55 Wednesday.

The company also said it expects to use some of its existing cash balances for the refinancing and obtain a revolving credit facility for increased liquidity and operating flexibility. The cash will be used to pay fees and expenses or to reduce outstanding borrowings, Bopp said.

Referring to the shelf filing and the stock authorization, Bopp said: "With this combination of resources we will be looking at what makes sense."

He noted: "The high-yield market looks pretty good right now."

The refinancing, Bopp added, should cut Alaris' interest expenses.

At the moment Alaris is paying an average of 11%, Bopp said on the conference call.

With a combination of bank debt and high-yield bonds, "you could probably end up below 8%," he added.

He noted that the company would probably swap any bank debt to a fixed rate while any new junk bonds would be at above the 8% level - although still much better than current levels.

Looking at the yield to worst at which its current bonds are trading, Bopp commented: "The market is saying, on our next financing we are not going to be paying 11% for our money."

Asked about the company's leverage, Bopp said Alaris currently has a debt to EBITDA ratio of 4.3 times.

Within 18-24 months of the refinancing that could go down to around 3.5 times as the lower interest costs allow improved cash flow, he said.

Alaris' net debt at the end of the first quarter was $430 million, down $27 million in the three months.

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