Reynolds starts exchange offers for $3.5 billion of Lorillard notes

By Toni Weeks

San Luis Obispo, Calif., June 11 – Reynolds American Inc. said it began exchange offers for the $3.5 billion principal amount of senior notes issued by Lorillard Tobacco Co.

Reynolds is also soliciting consents for each series of Lorillard Tobacco notes to amend the notes indentures, according to a company press release.

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

The company is 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 will issue $1,000 of new senior notes plus a consent payment of $2.50 to holders who tender their notes for exchange by the consent payment deadline, 5 p.m. ET on June 24, and $970 for those who tender after the early deadline.

The exchange offers will end at 5 p.m. ET on July 10.

Holders exchanging Lorillard Tobacco notes in the offers are 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 solicitations

Reynolds said it is soliciting 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 will be deemed to have delivered consents to all of the proposed amendments. Holders may not tender their notes without delivering consents or deliver consents without tendering their notes.

The exchange offers are conditioned on the completion of the merger, which is expected to occur by June 12.

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 are not 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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