Warner Chilcott may cut notes offer to $450 million from $1.4 billion

By Sara Rosenberg

New York, Sept. 23 - Warner Chilcott plc is considering the reduction of its $1.4 billion senior unsecured notes offering for the purchase of Procter & Gamble Co.'s pharmaceuticals business by $950 million, company officials said in a conference call on Wednesday.

The potential downsizing is a result of Warner Chilcott's newly announced deal to sell to LEO Pharma exclusive product licensing rights in the United States for its topical psoriasis treatments Taclonex, Taclonex Scalp, Dovonex as well as rights to all products in LEO's development pipeline.

LEO Pharma is paying $1 billion in cash for the assets and Warner Chilcott expects its net cash proceeds from the sale to be around $980 million.

The sale was anticipated to close on Wednesday.

Proceeds from the sale will be used to repay Warner Chilcott's senior secured credit facility in full, which had $480 million outstanding as of Wednesday, and help fund the Proctor & Gamble pharmaceuticals acquisition.

"Our desire would be to reduce the senior unsecured note piece and then the term pieces [are] unaffected," officials said in the call.

"Final structure remains to be seen based on how the syndication process goes. Process is going well. We're hopeful that we can conclude the process with a good solid execution, which means a capital structure that works for our company and hopefully minimizes our interest cost over the duration of the deal. That's our objective. We'll see how the market reacts to our offering," officials added in the call.

The senior unsecured notes are backed by a commitment for a $1.4 billion one-year bridge loan priced at Libor plus 800 basis points with a 2.5% Libor floor. The spread increases by 50 bps after each three-month period.

The senior secured credit facility that Warner Chilcott plans on getting for the Proctor & Gamble pharmaceuticals acquisition carries a maximum size of $2.75 billion.

The facility, as outlined by a commitment letter filed with the Securities and Exchange Commission, consists of a $250 million five-year revolver priced at Libor plus 350 bps, a $1 billion five-year term loan A priced at Libor plus 350 bps and a $1.5 billion 51/2-year term loan B priced at Libor plus 375 bps.

All tranches carry a 2.5% Libor floor.

Up to $350 million of the term loan A and/or the term loan B can be available as a 180-day delayed-draw loan. If the delayed-draw is not needed, the company expects to raise a total of $2.15 billion of term loan A and term loan B debt, as opposed to $2.5 billion.

The revolver has a 75 bps commitment fee and the delayed-draw term loan commitment fee will be half of the drawn spread.

According to the commitment letter, Warner Chilcott's term loan A and term loan B are expected to be offered to lenders at an original issue discount of 98.

However, market rumor is that the original issue discount on the term loan B may be talked at 981/2.

Financial covenants under the facility include a maximum leverage ratio opening at 4.25 times and decreasing until it reaches 2.5 times after Sept. 30, 2013, and an interest coverage ratio that opens at 2.0 times and increases until it reaches 3.0 times after Sept. 30, 2013.

Bank of America and Credit Suisse are the co-lead arrangers on the deal. Bookrunners are Bank of America, Credit Suisse, Barclays, Citigroup, JPMorgan and Morgan Stanley. Credit Suisse is the administrative agent.

The banks have committed to provide 16 2/3% of the credit facility.

Currently, the banks are out to certain lenders looking for big tickets towards this deal, while a retail launch has yet to be set.

Market buzz is that this big ticket round has been going very well.

During the call, officials said that it is possible that the transaction will close by the end of October. Closing is subject to regulatory approvals, the receipt of proceeds of the financing, the delivery of audited financial statements for the pharmaceuticals business and other customary conditions.

Warner Chilcott is a Rockaway, N.J.-based specialty pharmaceutical company.

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