UPDATE 1: 5:01 a.m. ET 5/10/2023: Management of nutrition and supplements company Health And Happiness International Holdings Ltd., or H&H, said during a roadshow held this week that it proposes to issue about $300 million new 3NC2 offshore notes with proceeds to refinance its existing $269.656 million 5.625% senior notes due 2024, according to two sources familiar with the matter.
The company announced a concurrent new senior USD notes issue and offer to purchase the 5.625% notes for cash on May 8,
as reported.
The company noted on the roadshow that it has decided to conduct the refinancing one year ahead of the maturity, as it believes the rate environment has stabilized.
H&H said that for its concurrent offer to purchase the due 2024s for cash, the minimum transaction size is about $200 million to $300 million.
As for the amortization payment schedule for its loans, the company plans to pay CNY 1 billion this year, and $112 million in June 2024. The company expects to have about CNY 1 billion free cash for debt repayment each year.
According to its
annual report 2022, for the period ending Dec. 31, 2022, the company had interest bearing loans of CNY 113.17 million paying a margin over HIBOR and CNY 275.5 million interest bearing loans paying a margin over SOFR maturing in June 2023. CNY 167.7 million loans paying a margin over HIBOR and CNY 410.8 million loans paying a margin over SOFR mature in December, 2023, as reported.
Management said the company can also negotiate with bank lenders to expand its borrowing quotas, but plans to refinance its bond maturity in 2023 and complete the refinancing of its bank loans in 2024.
H&H is not considering issuing any convertible bonds as its current equity price is quite cheap.
As of Dec. 31, 2022, the company had about CNY 7.663 billion interest-bearing bank loans, from offshore markets including Hong Kong, Australia and the United States, and had not conducted any financing in mainland China. About 40% of its funds are located onshore with the rest located offshore, management added.
Management added that the company still has an about $400 million bond issuance quota from the National Development and Reform Commission, although the quota can only be used to refinance its existing notes.
The company has no near-term plan for share placement as it is concerned about getting its stake diluted, management said on the roadshow.
If the new bond issuance does not go through, the company will not conduct the tender offer and plans to repay the due 2024 notes at maturity with its own cash resources and bank borrowings, management said.
Original Story 6:26 a.m. UTC on May 8, 2023Health & Happiness Launches Proposed USD Senior Notes Issue, Concurrent Tender Offer for Outstanding $270M 5.625% Senior Notes Due 2024; Term Loans Offered in Secondary in Mid- to High 90sRelevant Documents:New Issuance and Tender OfferFY22 Report
China-based Hong Kong-listed nutrition and supplements company Health & Happiness International Holdings Ltd., or H&H, formerly known as Biostime, the owner of the Swisse Wellness brand of adult nutrition products, has commenced a proposed new issue of senior USD notes and a concurrent offer to purchase for cash its 5.625% senior notes due 2024, according to a Hong Kong stock exchange announcement today, May 8.
The outstanding on the due 2024 notes is $269.656 million, according to the announcement. The originally $300 million senior notes were issued in October 2019 and were used to redeem senior notes issued in June 2016 and January 2017, according to the company’s annual report 2022. Between Aug. 17 and Oct. 26, 2022, the company repurchased $29.44 million of the notes at a total consideration of $26.16 million, according to the annual report.
The due 2024 notes are currently indicated at around 83.65%, with a yield to maturity of around 19.76%, according to buysiders. The notes have fallen around 10 points over the three months since Feb. 8, when they were indicated at around 93.6, according to information on cbonds.
The purchase price payable to the eligible holders whose 2024 notes are accepted for purchase will be equal to $1,014.0625 for each $1,000 in principal amount of the 2024 notes, and the company will also pay an amount equal to the accrued and unpaid interest, from and including the last interest payment date up to, but excluding, the settlement date, according to the exchange filing.
The offer commenced today, May 8, and expires on May 17 at 4 p.m. London time, with settlement expected on around May 22. The maximum acceptance amount is expected to be determined after the expiration deadline, the exchange announcement states.
H&H has hired Deutsche Bank Hong Kong, Goldman Sachs Asia and HSBC have been appointed as dealer managers for the tender offer, and Kroll Issuer Services Ltd. is the information and tender agent, the May 8 exchange filing states.
Deutsche Bank Hong Kong, Goldman Sachs Asia and HSBC are joint global coordinators, lead managers and bookrunners for the senior notes offering, while China CITIC Bank International, Industrial Bank Hong Kong, Rabobank Hong Kong and Standard Chartered Bank are co-managers, the exchange filing states.
Term Loans
H&H’s term loans have recently been offered in secondary markets at pricing in the mid- to high-90s, according to a buyside and a sellside source.
Reorg reported in March 2022 that H&H had turned to the term debt bank markets for refinancing after being forced to cancel a planned up to $400 million bond on the evening of Jan. 24 due to volatile market conditions.
The company had sent a request for proposals and was seeking four to five banks to raise around $1.2 billion three-year term debt, which would be used to refinance existing debt, including funds used to acquire pet nutrition company Zesty Paws in 2021.
The outstanding $300 million 5.625% notes due Oct. 24, 2024, would not be refinanced, as Reorg reported at the time.
According to H&H’s annual report 2022, the group drew down a three-year term loan with an aggregate principal amount of $1.125 billion in June 2022 to refinance all its existing loan facilities. The new loan is a sustainability linked loan “with three ESG targets that will unlock interest savings when each target is met,” the annual report states.
As at Dec. 31, 2022, and 2021, the group’s interest-bearing bank loans were guaranteed on a joint and several basis by the company and certain of its subsidiaries and were secured by fixed and floating charges over present and future assets of the company and certain of its subsidiaries and assignments over the company’s and certain of its subsidiaries’ rights to their material contracts and insurance policies, the annual report 2022 notes. In addition, certain subsidiaries’ shares are also pledged.
As at Dec. 31, 2022, the group’s bank loans were denominated in USD, AUD and HKD at aggregate amounts of CNY 5.41 billion ($780 million) (2021: CNY 7.06 billion), nil (2021: CNY 379.57 million) and CNY 2.25 billion (2021: nil), respectively, the annual report notes.
According to the same report, interest bearing loans of CNY 113.17 million paying a margin over HIBOR and CNY 275.5 million interest bearing loans paying a margin over SOFR mature in June 2023. CNY 167.7 million loans paying a margin over HIBOR and CNY 410.8 million loans paying a margin over SOFR mature in December, 2023.
Prior Bond Attempt
The abandoned $400 million bond, which had been guided at pricing of 8%, had been targeted to refinance an existing term loan and senior revolving credit facility, according to its
preliminary offering circular.
According to an S&P rating report on Jan. 17, 2022, H&H arranged a $350 million bridge loan and $150 million term loan maturing in 2023 to finance the $610 million acquisition of Zesty Paws, and intended to use proceeds from the bond to refinance the bridge. The offering circular also details a fully drawn $50 million senior revolving credit facility. According to a Jan. 17, 2022 announcement to the Hong Kong exchange, mandated lead arrangers for the 2019 revolver were Goldman Sachs Asia, HSBC and JP Morgan Securities.
H&H acquired Solid Gold and Zesty Paws over the prior 12 months to form a new pet nutrition segment, the rating agency notes in its January 2022 report, adding that Zesty Paws enjoys a higher EBITDA margin at 18%-20% and has better growth potential than H&H, and the brand is anticipated to continue to focus on the US market, as the Chinese market for pet nutritional supplement is still nascent. A large-scale China market entry was not likely over the next 12-18 months, S&P noted in the report.
S&P also reported that adjusting for the Zesty Paws acquisition on a pro forma basis, H&H's debt-to-EBITDA as of Dec. 31, 2021 would be 3.9x-4.1x. However, the rating agency notes that H&H does have a track record of quickly deleveraging after a sizable acquisition, noting that leverage spiked to 6.8x in 2015 post acquisition of Swisse Wellness, but H&H was able to reduce this to 2.1x by 2017.
As of Dec. 31, 2022, the group’s outstanding interest-bearing bank loans amounted to CNY 7.663 billion ($1.11 billion), including a current portion of CNY 967.2 million, according to H&H’s annual report 2022. The total carrying amount of the senior notes was CNY 1.906 billion, including the current portion of CNY 19.4 million. As of Dec. 31, 2022, net leverage decreased to 3.68 from 3.77 of the previous year, calculated by dividing net debt by adjusted EBITDA for the year ended Dec. 31, 2022. Gearing decreased slightly from 46.2% as of Dec. 31, 2021 to 45.6% as of Dec. 31, 2022, calculated by dividing the sum of the carrying amount of senior notes and interest-bearing bank loans by total assets, according to the annual report.
–Stephen Aldred