MF Global Holdings Ltd. (NYSE: MF), a broker-dealer providing trading and hedging solutions, has announced the pricing of an underwritten public offering of USD325 million aggregate principal amount of 3.375% Convertible Senior Notes due 1 August, 2018. MF Global also granted the underwriters a 30-day option to purchase up to an additional USD45 million aggregate principal amount of convertible notes. The offering is expected to close on 2 August, 2011, subject to customary closing conditions.
The convertible notes will be the senior, unsecured obligations of MF Global Holdings Ltd. and will bear interest at a rate of 3.375% per annum, payable semi-annually in arrears on 1 February and 1 August of each year, beginning on 1 February, 2012. Upon conversion of the convertible notes, MF Global will pay, at its election, cash or a combination of cash and shares of MF Global common stock. The conversion rate will initially equal 101.0331 shares of MF Global common stock per USD1,000 principal amount of convertible notes, which corresponds to an initial conversion price of approximately USD9.90 per share of MF Global common stock, representing a premium of 32.5% over USD7.47, which was the closing price per share of MF Global common stock on July 28, 2011. The conversion rate will be subject to adjustment upon the occurrence of certain events.
MF Global intends to use a portion of the net proceeds from the offering of the convertible notes to fund the cost of entering into the convertible note hedge transactions described below (after such cost is partially offset by the proceeds that MF Global will receive from entering into the warrant transactions described below). In addition, MF Global has agreed to repurchase approximately USD109.1 million of its outstanding 9% convertible senior notes due 2038 (the “2038 Convertible Notes”) from a limited number of holders of such notes in privately-negotiated transactions, which are conditioned upon the closing of the offering. MF Global intends to use approximately USD130.6 of the net proceeds from the offering to complete such repurchases and to pay all related fees and expenses. If MF Global does not complete the offering, it will not repurchase the 2038 Convertible Notes. MF Global intends to use any remaining net proceeds from the offering for general corporate purposes.
In connection with the offering of the convertible notes, MF Global entered into privately-negotiated convertible note hedge transactions with certain counterparties, including one or more of the underwriters in the offering and/or their affiliates (in this capacity, the "hedge counterparties"). The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of MF Global common stock that initially underlie the convertible notes. MF Global also entered into separate, privately-negotiated warrant transactions with the hedge counterparties relating to the same number of shares of MF Global common stock. If the underwriters exercise their option to purchase additional notes, MF Global intends to enter into additional convertible note hedge transactions and additional warrant transactions with the hedge counterparties, which will initially cover the number of shares of MF Global common stock that will initially underlie the additional notes sold to the underwriters.
The convertible note hedge transactions are expected to reduce the potential dilution with respect to MF Global common stock upon conversion of the convertible notes. The warrant transactions, however, could have a dilutive effect with respect to MF Global common stock to the extent that the price per share of MF Global common stock exceeds USD13.0725, which is the strike price of those warrants.
In connection with establishing their initial hedge positions with respect to the convertible note hedge transactions and the warrant transactions, MF Global expects that the hedge counterparties and/or their affiliates will enter into various cash-settled derivative transactions with respect to MF Global common stock concurrently with, or shortly following, the pricing of the convertible notes and may unwind these over-the-counter derivative transactions and purchase shares of MF Global common stock in open market transactions following the pricing of the convertible notes.
These activities could have the effect of increasing, or preventing a decline in, the market price of MF Global common stock concurrently with, or after the pricing of the convertible notes. The effect, if any, of these activities, including the direction or magnitude, on the market price of MF Global common stock will depend on a variety of factors, including market conditions.
Goldman, Sachs & Co. and Citi will act as joint book-running managers and BofA Merrill Lynch, J.P. Morgan, Deutsche Bank Securities and RBS will act as co-managers for the offering of the convertible notes.
The offering of convertible notes is being made pursuant to MF Global’s shelf registration statement filed with the Securities and Exchange Commission (the "SEC"). This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities nor shall there be any sale of any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
