Coty sets investor call for $500M of secured notes to repay term debt

Coty Inc. has pitched a $500 million offering of 7.2-year (non-call 3.2) senior secured notes to repay existing term debt. Pricing for the new issue will follow an investor call today at 11 a.m. ET. Initial price thoughts are circulating in the "very-high 4%" context, according to market sources.

Bookrunners on the deal are BofA Securities (left), J.P. Morgan, BMO Capital Markets, Unicredit, HSBC, Morgan Stanley, BNP Paribas, Credit Agricole, ING, RBC Capital Markets and SMBC Nikko.

The net proceeds will be used to repay all of Coty's euro-denominated loans outstanding under its existing senior secured term loan A credit facility, a portion of the amount outstanding under its senior secured revolving credit facility due April 2023, and to pay any related premiums, fees and expenses thereto.

S&P Global Ratings on Nov. 12 raised the issuer credit rating on Coty by one notch to B, and concurrently upgraded the issue-level rating on the company's senior secured debt to B+, from B, and its senior unsecured debt to B, from B-.

"The upgrade reflects improved credit metrics from debt reduction following capital structure changes and our expectation for higher EBITDA due to strong revenue growth and as the company reduces its restructuring spend," Ratings said. The agency expects continued sales growth in the low-to-mid-teens percentage range, and earnings by more than 10% while sustaining leverage below 6x, utilizing cash proceeds from proposed future transactions for debt reduction in fiscal 2022.

Moody's on Sept. 21 also boosted Coty’s corporate and debt ratings. The corporate rating was raised to B2 from Caa1; its senior secured credit facility and senior secured notes to B1, from B3; and its unsecured notes to Caa1 from Caa3. Moody's cited a decline in the company's leverage resulting from stronger cash flow and the proceeds of asset and stock sales, and also pointed to preferred stockholder KKR's conversion of preferred stock into common stock, which it said reduced annual cash dividends by roughly $30 million.

Coty Inc., together with its subsidiaries, engages in the manufacture, marketing, distribution and sale of beauty products worldwide. The company's wholly owned subsidiaries, HFC Prestige Products, Inc. and HFC Prestige International U.S. LLC, are also co-issuers for the new issue. The bonds will be structured with a first call at par plus 50% of the coupon, an up-to-40% equity clawback at par plus the coupon during the non-call period, and a change of control put at 101%.