Spectrum Brands to get $1.05 billion loan, $750 million notes for Russell Hobbs merger

By Sara Rosenberg

New York, Feb. 9 - Spectrum Brands Inc. plans on getting a new $1.05 billion credit facility and issuing $750 million of senior secured notes due in 2017 in connection with its merger with Russell Hobbs Inc., according to a company presentation.

Credit Suisse, Bank of America and Deutsche Bank are the lead banks on the financing.

The credit facility consists of a $300 million four-year ABL revolver and a $750 million term loan due in 2016, the presentation said.

Proceeds from the loan and the notes will be used to refinance Spectrum Brands' existing senior debt and a portion of Russell Hobbs' existing senior debt.

At the end of the Spectrum Brands' first fiscal 2010 quarter, $1.334 billion was drawn under its senior term loans, and roughly $72 million was drawn under its $242 million ABL facility.

Under the merger agreement, current shareholders of Spectrum Brands will receive one share in the new combined company for each share they hold. Furthermore, as part of the transaction, Harbinger has agreed to convert its existing about $158 million of Russell Hobbs' term debt and $207 million of Russell Hobbs' preferred stock into common stock of the new company at a price of $31.50 per share. Following the closing of the transaction Harbinger is expected to own 63.7% of the combined entity.

The all-stock transaction values Spectrum Brands at an enterprise value of $2.6 billion, or $965 million net of debt, which equates to $31.50 per share net of outstanding debt, and privately held Russell Hobbs at an enterprise value of $675 million, or $661 million net of debt.

The combined company, which will operate under the Spectrum Brands name, is expected to deliver about $3 billion in annual revenues with $430 million to $440 million of adjusted EBITDA in fiscal 2010.

Following the refinancing of Spectrum Brands' term loan debt and ABL facility, the new combined entity is expected to have a leverage ratio of 3.8 times forecasted adjusted EBITDA for fiscal 2010. By comparison, Spectrum Brands' leverage ratio at the end of the first fiscal 2010 quarter was 4.7 times.

"This transaction will enable the combined company to reap the benefits of a deep and diverse portfolio of well-known consumer brands, a strong balance sheet, significant synergies and enhanced growth opportunities," said Kent Hussey, chief executive officer of Spectrum Brands, in a news release.

"For Spectrum's shareholders, this transaction also provides an opportunity to delever our capital structure, lower the cost of our combined debt and provide greater liquidity, an improved risk profile and longer-term financing for our company," Hussey added.

The deal is expected to close in the summer of 2010 and is subject to approval by holders of a majority of Spectrum Brands' common stock not owned by Harbinger, a 45-day go-shop period, closing of the new financing and other customary conditions.

Spectrum Brands is an Atlanta-based consumer products company. Russell Hobbs is a Miramar, Fla.-based marketer and distributor of a broad range of branded small household appliances.

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