Avnet to sell $270 million convertible at 1.625-2.125%, up 50-55%, tenders for 7.875% notes

By Ronda Fears

Nashville, March 1 - Avnet Inc. launched a quick-sale $270 million of 30-year convertible notes talked to yield 1.625% to 2.125% with a 50% to 55% initial conversion premium. With cash on hand, proceeds are earmarked to redeem its 7.875% notes due 2005, a $360 million issue for which a tender began Monday.

Banc of America Securities and Credit Suisse First Boston are joint lead managers of the registered offering, which was scheduled to price after Monday's close. Co-managers are Bank One, ABN Amro, Scotia Markets, RBC Dominion and Wachovia Securities.

The senior notes will be non-callable for five years with puts in years five, 10, 15, 20 and 25. There is a 135% contingent conversion trigger and 120% contingent payment trigger.

There is a $30 million greenshoe available.

Standard & Poor's assigned a BBB- rating to the proposed convertible, with a negative outlook.

After declining 30% in fiscal 2002, S&P said the Phoenix-based distributor of semiconductor, interconnect, network equipment and other electronics instruments saw revenues stabilize in fiscal 2003. With industry firm Gartner Dataquest forecasting about 5% growth in spending on hardware and telecom equipment, S&P said it expects sustained revenue growth for Avnet in calendar 2004.

S&P also noted that EBITDA margins are weak but improving, at about 3%. EBITDA coverage of interest expense, although improved, is still weak for the rating level at about 3 times, the rating agency said.

Moody's assigned a Ba2 rating to the proposed convertible and revised the company's outlook to stable from negative.

The outlook revision, Moody's said, reflects substantial elimination of refinancing risk of the 2005 notes, historically high cash balance of $479 million as of Jan. 3 and moderate improvement in operating results and interest coverage, countered by high debt leverage amid low overall returns and profitability.

For the 12-months ended Jan. 3, Moody's put Avnet's adjusted EBITDA to interest coverage at 2.3 times and noted a reduction in its debt to adjusted EBITDA leverage ratio to 5.7 times.

Avnet shares ended Monday down $1.14, or 4.784%, to $22.41.

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