MDC reopens its bonds

It’s not in the dictionary but if editors are looking for a new way to describe the term “reopening,” they could use the practice of raising senior unsecured debt capital the

MDC Partners way. Tuesday, TSX-listed, New York-managed MDC Partners announced a US$100-million reopening of a 6.75% seven-year debt financing. A few hours later MD C, a non-investment grade borrower, announced the deal had been upsized to US$110-million.

The original financing took place last March when MDC, rated B- by S&P, raised US$550-million of 6.75% seven-year debt priced at par.

As a result, the company that defines itself as one of the world’s largest business transformation organizations now has US$660-million of 2020 debt outstanding. The reason is the new notes are the mirror image of the already-issued notes. They have the same coupon, the same maturity date with the only difference being a slight reduction in the term to maturity.

But since the US$550-million March deal, two things have happened at MDC: the bonds have rallied and its share price hit new highs. So when the opportunity came, MDC jumped at the chance to raise additional debt capital at a lower yield that it was required to pay a mere eight months back. On its current deal the bonds were priced at US$103.75, a level that translates into higher gross proceeds (US$114.1-million) and a yield of 5.76% for an interest rate saving of almost 100 basis points.

MDC plans to use the proceeds from the issue, sold by way of a private placement and placed with qualified institutional buyers, for general corporate purposes.

MDC has a significant history with bond reopenings or follow-on financings. Indeed prior to this week’s reopening, it has done three others.

Given that a reopening can only take place on a bond that is already issued, a convenient starting point is October 2009. Four years back, in what was the company’s first-high yield deal, US$225-million of sevenyear debt was raised. The coupon was a healthy 11%, which translated into an even healthier 12.50% yield given the notes were priced at a discount. The bonds had a maturity date of Nov. 1, 2016.

Over the next three years, MDC was back in the market with three other reopenings, meaning it made three additional issues of the same bonds. In May 2010, US$65-million (face value) was raised; in April 2011 another US$55-million (face value) was scooped up while last December 2012, a further US$80-million of face value bonds was placed. With one exception, the yield MDC was required to pay on the successive financings drifted lower. As well the spread above comparable U.S. Treasuries also tended to drift lower.

By last March, MDC was ready for more action. But instead of doing another reopening, it decided to take advantage of lower interest rates, raise a ton of capital and redeem existing debt.

So it went looking for US$500million, ended up with US$550million for which it paid 6.75%. The proceeds were used to repay the US$425-million of 11% debt that MDC had issued over the previous three-and-a-half years. After paying the premiums (according to MD C’s Q1 financial statements it took a US$55.6-million loss of redemption of notes) the rest was used for general corporate purposes. In turn, that financing led to this week’s reopening, raising the spectre of more on the way.