Sealy Mattress utilizes special 103 pre-pay option on 10.875% high yield bonds

sealy mattress logoSealy Mattress is the latest issuer to exercise a special call option for up to 10% of outstanding notes at 103% of par once annually. The redemption is mandatory for holders, who will be notified by mail, and as such, investors will relinquish their pro rata share at a below-market rate.

Sealy is calling $25 million of the $295 million outstanding of 10.875% secured notes due 2016. The BB-/Ba3 notes were issued in May 2009, at 95.98, to yield 11.75%, but they are now pegged at 108.5, yielding about 6.2%, according to S&P Capital IQ. As reported, issuance was under Rule 144A for life.

The deal originally totaled $350 million, but Sealy exercised the special call several times. In fact, the issuer called $10 million of the paper in December, according to SEC filings.

The 103 pre-pay option has been an increasingly popular component of high-yield deals in the wide-open market, even though it has been dropped from some offerings amid push-back from investors (American Greetings and Yonkers Raceway last year among them).

Consider that seven new issues totaling $2.6 billion have featured the special call this year, versus 31 issues totaling $11.7 billion last year and 37 totaling $16.9 billion during 2010. Just 13 issues totaling $7.5 billion featured the special call from the time the feature first appeared on Nortek 10% secured notes in May 2008 to the end of 2009, according to LCD, a division of S&P Capital IQ.

Generally, the tenor of these special-call options will run for three years or for the length of the non-callable period. Also, the redemption price has generally been 103% of par, but there have been outliers, such as 105% of par on a CEVA deal in January and 106.25% of par on a Saratoga Resources deal last summer. – Matt Fuller

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