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Time HY Bonds Pop as Meredith Bid Said to Net Koch Brothers Backing

Bonds backing Time Inc. were among the top performers in the high-yield secondary this morning after news reports said billionaire industrialists Charles and David Koch have “tentatively agreed” to back Meredith Corp.’s renewed bid for the issuer with an equity injection of more than $500 million.

Time 7.5% notes due 2025 rose 5.625 points, to 106.25, according to MarketAxess. The notes traded as low as 99.375 in early November. Meanwhile, shares of Time (NYSE: TIME) rallied roughly 25%, to $15.80.

Sources estimate that the $500 million equity injection should provide the issuer, if a deal is completed, with a more stable leverage profile of roughly 3x, which is still on the high end of forecasts. Sources added that Time’s October refinancing transactions would have been unlikely to occur if active merger discussions were taking place at that time.

Meredith Corp., alongside suitors including Pamplona Capital Management, had reportedly been in talks earlier this year to acquire the New York media company, but Time’s board rebuffed offers in favor of its own strategic growth initiatives.

Time CEO Richard Battista, on a May earnings call with analysts, said that issuer had “thoroughly reviewed the expressions of interest,” adding the board “has determined that the best foot forward at this company was to continue with our own plan.”

Some investors expressed frustration over the board’s refusal to accept reports of Meredith’s premium valuation of the company, including activist Leon Cooperman of hedge fund Omega Partners.

“We read about Meredith’s interest in the company, that there were a number of interested parties, and here we have now a $13, $14 stock when somebody was willing to pay $18 for the company and we have a failed process,” Cooperman said on the company’s May earnings call with analysts. “And you don’t really talk about what the strategic plan really is. So I would encourage you to get quantitative, not qualitative,” he added.

Time Inc. last tapped the debt markets in early October, placing a $300 million issue of 7.5% notes due 2025 on Oct. 4, with proceeds earmarked to repay roughly $200 million of the issuer’s B term loan and to reduce by roughly $100 million by the end of 2017, in one or more transactions, the size of its term loan or outstanding notes.

Changes to the transaction were made on the covenants front, including a reduction to the credit facilities basket to $1.5 billion, from $2.4 billion. Also, the consolidated-net-leverage ratio for the debt-incurrence test (and also the governor for accessing the RP builder basket) was reduced to 3.5x, from 4.5x.

The company also on Oct. 6 placed a $464 million covenant-lite TLB (L+350, 1% LIBOR floor) to extend the maturity of its TLB to October 2024, from April 2021.

Corporate and bond ratings are B/B1 and BB–/B2, with a 4 recovery rating on the unsecured bonds by S&P Global Ratings. The covenant-lite term loan is rated BB–/Ba2, with a 1 recovery rating by S&P. — Staff reports

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