iPayment begins exchange offers for 10¼% notes, 15% notes due 2018

By Susanna Moon

Chicago, Nov. 10 – iPayment Holdings, Inc. subsidiary iPayment, Inc. (Opco) began exchange offers for two series of notes, as announced on Sept. 29, according to an 8-K filing with the Securities and Exchange Commission.

The exchange offers will run until 5 p.m. ET on Dec. 9.

Tendered notes may be withdrawn at any time before the end of the offers.

Offer terms

As previously reported, the companies entered into an exchange offer support agreement on Sept. 29 with the holders of 70.7% of Opco’s outstanding 10¼% senior notes due 2018 and the holders of 91.2% of iPayment Holdings’ outstanding 15% senior notes due 2018.

Under the support agreement, Opco agreed to begin an exchange offer to holders of the outstanding 10¼% notes to exchange their notes for a combination of iPayment Holdings common stock and new 8½% senior secured notes due 2019.

Under the offers, holders of the 10¼% notes would receive their pro rata share of (i) $285 million principal amount of new notes and (ii) 61.5% of the common stock to be issued and outstanding following the completion of the exchange offers.

In addition, iPayment Holdings also agreed to offer to holders of the outstanding 15% notes to exchange their notes for a combination of common stock, warrants and new notes.

Holders of the 15% notes would receive their pro rata share of (i) $30 million principal amount of new notes, (ii) 18.5% of the common stock to be issued and outstanding following the completion of the exchange offers and (iii) warrants.

The warrants’ exercise price is $6.78 per share of common stock, subject to adjustment.

The warrants will be exercisable prior to the eighth anniversary of the completion of the exchange offers at any time for cash or automatically in the event of initial public offering or change-of-control transactions.

If 100% of the warrants are exercised, holders of the 15% notes would own 40% of the company’s common stock, existing equityholders would own 47.5% and the holders of the 10¼% notes would own the remaining 12.5%.

In connection with the exchange offers, iPayment Holdings also will issue warrants to its existing stockholders.

Holders of the 10¼% notes will also be paid all accrued interest on their 10¼% notes, and holders of the 15% notes will be paid the cash portion of all accrued interest on their 15% notes, in each case through the closing date of the exchange offers.

More offer details

In order to participate in the exchange offers, noteholders will have to provide their consent to the related consent solicitation that will separately amend the indentures governing the 15% notes and the 10¼% notes to eliminate substantially all of the covenants and related events of default and other related provisions.

The supporting noteholders agreed to tender their notes and deliver their consents, the company previously said.

Under the exchange offer support agreement, the companies agreed to amend the credit agreement governing Opco’s senior secured credit facility in order to amend some financial covenants and covenants and defined terms to permit the exchange offers and to reflect the ownership structure that will result from the exchange offers.

The closing of the exchange offers are subject to the receipt of tenders for at least 95% of each series of notes and the execution of the credit agreement amendment.

The exchange offer support agreement may be terminated if the exchange offers are not completed by Dec. 31.

The exchange offer support agreement provides that the companies will enter into an employment agreement with Carl Grimstad as chief executive officer once the exchange offers are completed.

In addition, the exchange offer support agreement provides that any management incentive plan to be approved by iPayment Holdings’ board of directors will reserve for issuance up to 5% of iPayment Holdings’ common stock.

iPayment is a New York-based provider of credit and debit card payment processing services to small merchants.

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