American Medical Systems holders tender $289.5 million 3.25% convertibles in oversubscribed offer

By Angela McDaniels

Tacoma, Wash., Sept. 17 - American Medical Systems Holdings, Inc. said it received tenders for $289.5 million principal amount, or 93%, of its $312 million of outstanding 3.25% convertible senior subordinated notes due 2036 during an exchange offer.

The company offered to issue new 4% convertible senior subordinated notes due 2041 in exchange for up to $250 million of the 3.25% convertibles.

Because the offer is oversubscribed, the notes will be subject to a proration factor of about 86%. After factoring in the proration, $62 million principal amount of 3.25% convertibles will remain outstanding following the offer. Settlement is expected to occur on Sept. 21.

Holders will receive $1,000 principal amount of the new 4% convertibles for each $1,000 principal amount of 3.25% convertibles plus accrued interest.

The offer began on Aug. 14 and expired at midnight ET on Sept. 16 after being extended from Sept. 11.

The exchange offer was conditioned on the receipt of tenders for at least $100 million principal amount of 3.25% convertibles, the last reported sale price of the company's common stock not exceeding $17.64 per share on the expiration date and the satisfaction of some other customary conditions.

New convertibles terms

As previously reported, the company amended the offer on Sept. 2 to increase the coupon of the new convertibles to 4% from 3.75%.

The 4% notes will be convertible into cash, and in some circumstances, shares of the company's common stock initially at the same conversion price as the 3.25% notes, which is $19.4055 per share.

Beginning Sept. 15, 2016, contingent interest will accrue on the 4% convertibles during any interest period where the average trading price of the convertibles for the five trading days immediately preceding the first day of that period is $1,300 per $1,000 principal amount or more. The contingent interest will accrue at a per-year rate equal to 0.75% of that average trading price.

The 3.25% convertibles have a similar feature that begins July 1, 2011. The trading price that must be met or exceeded is $1,200 per $1,000 principal amount, and the contingent interest rate is 0.25% of the average trading price rather than 0.75%.

The company said that if it fails to comply with certain reporting obligations under the indenture governing the 4% convertibles, it may elect to pay additional interest for each day during the period, not to exceed 180 days, while that event of default is continuing. The additional interest will equal 0.25% for the first 90-day period and 0.50% for the second 90-day period. This additional interest will be the sole remedy of the holders during the 180-day period.

The 4% convertibles will be putable on Sept. 15, 2016 or following a fundamental change.

The 3.25% convertibles have a put option on July 1 of 2013, 2016, 2021, 2026 and 2031.

The 4% convertibles are callable before Sept. 17, 2010 if certain U.S. federal tax legislation, regulations or rules are enacted or are issued, the company said. The redemption price would be 101.5% of par plus, if the current conversion value of the notes being redeemed exceeds their initial conversion value, 85% of that difference.

The 3.25% convertibles are not callable.

A default by the company or any of its significant subsidiaries or subsidiary guarantors on debt in excess of $25 million that results in that debt becoming due and payable or constituting a failure to pay principal or interest when due will be an event of default under the 4% convertibles.

This is also true of the 3.25% convertibles, but the threshold is $10 million instead of $25 million.

Finally, the terms of the new convertibles do not limit the senior debt under the company's credit facility to which the 4% convertibles are subordinated, and the senior debt is not required to be secured.

Under the existing convertibles, the senior debt under the credit facility may not exceed $650 million and must be secured.

J.P. Morgan Securities Inc. (800 261-5767 or 212 622-2781) was the lead dealer manger, and Goldman, Sachs & Co. was the co-dealer manager. D.F. King & Co., Inc. (800 549-6697 or 212 269-5550) was the information agent, and U.S. Bank NA was the exchange agent.

American Medical Systems is a Minnetonka, Minn., supplier of medical devices and procedures focused on pelvic disorders.

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