Dow Chemical (DOW) priced a $2.75 billion public debt offering in an effort to repay a loan used to acquire Rohm & Haas in April this year.
The offering includes $250 million of floating rate notes due 2011, $1.25 billion of 4.85% of notes due 2012 and $1.25 billion worth of 5.90% notes due 2015. The proceeds will be used to repay a bridge loan used for the $16.5 billion acquisition by the year-end.
In April, Dow acquired all outstanding shares of Rohm & Haas at $78 each, funding the deal by issuing $7 billion in preferred stock and borrowing $9.23 billion in a short-term loan.
To help finance the transaction, Dow has also renegotiated a $12.5 billion bridge loan syndicated by 19 banks led by Citigroup (C), Merrill Lynch and Morgan Stanley (MS). This new loan agreement adds two years to the repayment and has slightly looser debt covenants (the loan’s required leverage ratio has been lifted to 5.75 from 4.25) helping to further protect Dow from default.
Dow aimed to repay the bridge loan through sale of assets, issuance of equity and debt and by slashing dividend by 64% to preserve cash. Asset sales include the company’s thermoplastic polyurethane business, Morton International – the salt business of Rohm and Haas, and the spin-off or sale of Dow AgroSciences division as well as some specialty businesses like powder coatings and synthetic rubber.
Dow assured that the public debt offering along with $3.3 billion in asset sales will help it to repay the full bridge loan before year-end. We recommend shares of Dow as Neutral.
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