Spectrum Brands sets Monday launch for $1.3 billion credit facility

By Sara Rosenberg

New York, May 21 - Spectrum Brands Inc. is scheduled to hold a bank meeting on Monday to launch its proposed $1.3 billion credit facility, according to market sources.

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

The facility consists of a $300 million ABL revolver and a $1 billion term loan (B2), sources said.

The term loan is being talked at Libor plus 450 basis points with a 1.5% Libor floor and an original issue discount of 99, one source added.

Proceeds will be used to help fund the merger with Russell Hobbs Inc., and refinance Spectrum Brands' existing senior debt and a portion of Russell Hobbs' existing senior debt.

Other financing will come from a $500 million senior secured notes offering.

Originally, it was thought that the term loan would be sized at $750 million and the bonds would be sized at $750 million, based on company comments when the merger was first announced, but the loan has been upsized and the bonds have been downsized.

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.

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.

The deal is expected to close in June, subject to approval by holders of a majority of Spectrum Brands' common stock not owned by Harbinger.

A special meeting of stockholders to vote on the transaction is scheduled for June 11.

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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