Heckler & Koch seven-year notes could price Monday; talk 9¼% to 9½%

By Paul Deckelman

New York, July 9 - Heckler & Koch GmBH's planned offering of 115 million offering of senior secured notes due 2011 is talked at a yield in the 9 ¼% to 9 ½% neighborhood, a market source said Friday.

The source said that the bonds could price as early as Monday, which he said was "a little bit earlier than expected. The pricing follows a roadshow that began this past Monday.

Citigroup will run the books for the Rule 144A/Regulations S offering.

The notes will come with four years of call protection and will be secured with a first-priority security interest over capital stock and the note proceeds loan.

The Oberndorf, Germany-based company - a defense contractor in the small arms segment that sells only to NATO military and law enforcement clients - plans to use the proceeds of the offering to repay loans, pre-fund capital expenses and to provide working capital for its U.S. plant.

Moody's Investors Service recently assigned a prospective B1 rating to the deal, and also assigned a prospective B1 senior implied and unsecured issuer rating, with a stable outlook.

The ratings agency said that while pro forma adjusted total debt/EBITDAR is not expected to exceed 5x, the company's financial leverage is viewed as high, given Heckler's limited size and non-diversified business.

Moody's said Heckler's ratings are constrained by its high customer concentration, its lack of a track record operating as an independent company and its limited access to public markets.

More positively, the agency said, "the rating reflects the company's position as a leading small arms defense contractor with top market positions for the supply of assault rifles, fully automatic weapons and grenade launchers in NATO and NATO allied countries."

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