Reynolds American plans exchange offers for $3.5 billion Lorillard notes after merger

By Susanna Moon

Chicago, June 5 – Reynolds American Inc. said it plans exchange offers for the $3.5 billion principal amount of senior notes issued by Lorillard Tobacco Co.

Reynolds also plans to solicit the consents for each series of Lorillard Tobacco notes to amend the notes indenture, according to a company press release.

The offers are being planned in connection with the company’s merger proposal with Lorillard, Inc., the parent company of Lorillard Tobacco, the press release noted.

The company will be tendering for Lorillard’s $500 million 3.5% senior notes due 2016, $500 million 2.3% senior notes due 2017, $750 million 8.125% senior notes due 2019, $750 million 6.875% senior notes due 2020, $500 million 3.75% senior notes due 2023, $250 million 8.125% senior notes due 2040 and $250 million 7% senior notes due 2041.

In exchange for each $1,000 principal amount, the company expects to issue $1,000 of new notes plus a consent payment of $2.50 to holders who tender their notes for exchange by the consent payment deadline and $970 for those who tender after the early deadline.

Holders exchanging Lorillard Tobacco notes in the offers would be eligible to receive Reynolds American notes with interest provisions, maturity dates and interest payment dates identical to those being exchanged, the press release noted.

Consent bids planned

Reynolds said it expects to solicit consents to eliminate substantially all of the restrictive covenants and a bankruptcy event of default for the issuer and the guarantor of the Lorillard Tobacco notes as well as to eliminate the requirement under the Lorillard indenture that the guarantor of the notes continue to provide Lorillard noteholders with financial statements and other financial information.

The company also is seeking to relieve the issuer of the Lorillard notes of any requirement that the issuer offer to repurchase the notes upon change-of-control events combined with credit ratings events.

Lorillard noteholders tendering their notes would be deemed to have delivered consents to all of the proposed amendments. Holders would not be permitted to tender their notes without delivering consents or deliver consents without tendering their notes.

The exchange offers would be conditioned on the completion of the merger, which is expected to be by the end of June.

Shortly after the merger, Lorillard Tobacco will merge with and into Reynolds’ wholly owned subsidiary, R.J. Reynolds Tobacco Co., which will assume Lorillard Tobacco's obligations under the notes.

After the merger, the Lorillard Tobacco notes will be guaranteed only by R.J. Reynolds Tobacco Holdings, Inc., which will assume Lorillard's obligations as guarantor under the notes.

The offers would not be conditioned upon the tender of any minimum amount of any series of the outstanding Lorillard Tobacco notes or the receipt of the needed consents in any of the consent solicitations.

Reynolds American is a Winston-Salem, N.C.-based manufacturer and seller of cigarettes and other tobacco products.

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