Reed Elsevier launches exchange offer for 7.75% notes, 8.625% notes

By Marisa Wong

Madison, Wis., Oct. 10 - Reed Elsevier Group plc subsidiary Reed Elsevier Capital Inc. announced a private offer to exchange its outstanding 7.75% notes due 2014 and its outstanding 8.625% notes due 2019 for up to $600 million principal amount of new 3.125% notes due 2022 and cash.

The 7.75% notes will be accepted with priority over the 8.625% notes. The amount of 8.625% notes to be exchanged will equal the difference, if any, between the $600 million offer cap and the amount of 7.75% notes tendered.

The exchange offer began on Oct. 9 and will expire at midnight ET on Nov. 5.

Holders who tender 7.75% notes prior to 5 p.m. ET on Oct. 22, the early participation date, will receive for each $1,000 principal amount of old notes a total consideration of (a) a principal amount of new notes equal to $1,000 multiplied by $556 divided by the new notes price plus (b) $480 in cash plus (c) an early participation premium of $50 in cash.

The new notes price is equal to the discounted value on the applicable settlement date (for the exchanged notes) of the remaining payments of principal and interest per $1,000 principal amount of new notes through their maturity date. The price will be based on the yield on the 1.625% U.S. Treasury security due Aug. 15, 2022 and a fixed spread of 150 basis points. The new notes price will be calculated at 2 p.m. ET on Oct. 22.

Holders who tender 7.75% notes after the early participation date will receive the exchange consideration, which is the total consideration less the early participation premium.

For the 8.625% notes, the total consideration per $1,000 of old notes will be (a) a principal amount of new notes equal to $1,000 multiplied by an exchange ratio plus (b) $100 in cash plus (c) the $50 early participation premium.

The exchange ratio for the 8.625% notes will equal the quotient of (a) the 8.625% notes price minus the $100 cash component minus the early participation premium divided by (b) the new notes price defined above.

The 8.625% notes price is equal to the discounted value on the final settlement date (for the exchanged notes) of the remaining payments of principal and interest per $1,000 principal amount of 8.625% notes through their maturity, using a yield equal to the sum of the 1.625% U.S. Treasury reference yield plus a fixed spread of 80 bps. The 8.625% notes price will also be calculated at 2 p.m. ET on Oct. 22.

Holders who tender 8.625% notes after the early participation date will not be eligible to receive the early participation premium.

The company will also pay accrued interest to the applicable settlement date. The settlement date for early tendered notes and the final settlement date will fall on the second business days following the early participation date and the expiration date, respectively.

Tenders may not be withdrawn after 5 p.m. ET on Oct. 22.

If the amount of 8.625% notes tendered exceeds the cap - the exchange offer cap less the amount of tendered 7.75% notes - then the 8.625% notes will be accepted on a pro rata basis.

Reed Elsevier announced that it priced a cash offering of $250 million 3.125% notes on Tuesday. New notes issued under the exchange offer will form a single series and be fungible with the notes sold in the cash offering.

The exchange offer is subject to the settlement of the cash offering for the 3.125% notes and 3.125% notes being issuable on the early settlement date and final settlement date. The exchange offer is also conditioned on the reference yield being at least 1.35% on the determination date. However, the exchange offer is not conditioned on the tender of any minimum principal amount of old notes or the issuance of any minimum principal amount of new notes.

D.F. King, Inc. (800 488-8095 or 212 269-5550) is the information agent.

Reed Elsevier Capital is a wholly owned U.S. subsidiary of Reed Elsevier Group, a London-based publisher and information solutions provider.

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