Warner Music Group is trading old debt for new debt with a better interest rate and later due date. The music company is conducting a private offering for $535 million of senior secured notes due in 2030 that it expects to close June 29, it was announced Tuesday (June 16). At the same time, Warner wants to use the proceeds to purchase $300 million of new senior secured notes due in 2023.
If Warner sells $535 million notes due in 2030 to redeem $300 million of notes due in 2023, it would replace a 5% interest rate with 3.875%. On $300 million of principal, the difference in rates of 1.125% equals $3.375 million of interest saved annually. Also, the later due date allows Warner to lock in a low interest rate for the next decade.
Faced with uncertain consequences of the coronavirus pandemic, some companies are replacing debt to push out the redemption date at better interest rates. Just last week, SiriusXM priced an offering of $1.5 billion of 4.125% senior notes due 2030 that will repay all of its outstanding 5.375% senior notes due 2025. Liquidity has also been a major theme in the finance world. Many music companies, from Live Nation to iHeartMedia, have added liquidity to operate through a protracted downturn. Last quarter, Warner gained financial cushion by increasing its credit facility — it has a zero balance — from $180 million to $300 million.
In addition to the offering, Warner is seeking “consents” — debt holders’ approval — for the 2023 notes that would “eliminate substantially all of the restrictive covenants, certain events of default and other related provisions,” according to a press release. Easing covenants would also provide financial flexibility in the event of a market downturn.
The press release also reveals Warner intends to issue a conditional notice of redemption for all of two additional senior secured notes due in 2024: $215 million of 4.875% notes and $339 million of 4.875% notes. Warner’s balance sheet has two additional debts totaling $813 million, both due in 2026, that are not part of the tender offer or conditional notice of redemption.