Gap Sells $1.5 Billion Bond to Buy Back Costly Covid-Era Debt
(Bloomberg) -- Gap Inc. raised $1.5 billion from a junk-bond sale Monday to help it buy back expensive debt raised earlier in the pandemic last year. The deal will slash the company’s borrowing costs as it continues to focus on growth after Covid-19 hurt clothing sales.
The new $750 million eight-year notes priced at a yield of 3.625%, while the $750 million 10-year bonds came with a final yield of 3.875%, according to people familiar with the matter. That’s compared to early pricing discussions in the low-4% range and 25 basis points more for the longer portion, said the people, who asked not to be identified because the transaction is private.
It marks a steep decrease in the cost of borrowing for the San Francisco-based company. The new unsecured notes will help fund a tender offer to buy back three secured bonds that Gap issued in April of 2020 with coupons ranging from 8.375% to 8.875%.
The existing notes are backed by a first-priority claim on the company’s real estate, intellectual property and equity interests of some domestic units, and helped the company shore up liquidity last year.
Gap’s tender offer, which investors can choose to accept or not, will be funded by proceeds from the new note sale and cash on hand, according to a news release. The company will pay investors a premium ranging from 106.25 to 116.5 cents on the dollar, depending on the notes and by which deadline investors say yes. The early deadline for the tender offer is Sept. 24, and the final deadline is on Oct. 8.
The company is also asking investors to accept changes to bond documentation that includes eliminating certain restrictive covenants and releasing the collateral for the notes. Its existing bonds currently trade well above par, ranging from 109 to almost 116 cents on the dollar, according to Trace.
In August, Gap topped Wall Street’s expectations with its second-quarter results and increased guidance for the full year, highlighting the recovery for apparel retailers from the coronavirus slowdown.
Citigroup Inc. led the new bond sale.
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