Time Warner Announces Debt Reduction Plan and Financial Transactions

Strategic Insights -

Time Warner Inc. has announced two significant financial transactions aimed at strengthening its balance sheet and reducing debt. The company completed the monetization of its stake in Hasbro for $363 million, which will be used to redeem $1 billion in principal amount of its 8-3/4% Convertible Subordinated Debentures due 2015. Additionally, Time Warner has issued $500 million in 10-year notes to redeem a portion of its debt. The company's Chief Financial Officer, Richard J. Bressler, stated that these actions will help reduce debt by $1.6 billion since announcing a plan to sell or monetize non-core assets in February. The redemption of the convertible debentures will also replace higher-cost debt with lower-cost debt, resulting in a savings of over 300 basis points and reducing fully diluted shares outstanding by over 20 million shares.

Key Takeaways:

  • Time Warner has completed the monetization of its stake in Hasbro for $363 million, which will be used to redeem $1 billion in principal amount of its 8-3/4% Convertible Subordinated Debentures due 2015.
  • The company has issued $500 million in 10-year notes, which will be used to redeem a portion of its debt.
  • Time Warner aims to reduce debt by $2-3 billion, having already reduced debt by $1.6 billion since announcing a plan to sell or monetize non-core assets in February.
  • The redemption of the convertible debentures will result in a savings of over 300 basis points and reduce fully diluted shares outstanding by over 20 million shares.
  • The company has issued Preferred Exchangeable Redemption Cumulative Securities (PERCS) to complement its Liquid Yield Option Notes (LYONs), which are exchangeable into Hasbro common stock.
  • The combination of the PERCS issue and the LYONs will eliminate Time Warner's exposure to movement in the Hasbro common stock price and fix its combined future obligations under the two securities.

Statistics:

  • Time Warner has reduced debt by $1.6 billion since announcing a plan to sell or monetize non-core assets in February.
  • The company aims to reduce debt by $2-3 billion.
  • The redemption of the $1 billion in 8-3/4% Convertible Debentures due 2015 will replace higher-cost debt with lower-cost debt at a savings of over 300 basis points.
  • The redemption of the convertible debentures will reduce fully diluted shares outstanding by over 20 million shares.
  • The company has issued $1.863 billion in debt through the monetization of its stake in Hasbro and the issuance of $500 million in 10-year notes.

Sources:

  • Business Wire, "Time Warner Inc. Announces Two Financial Transactions to Strengthen Balance Sheet" (August 10, 1995)
  • Time Warner Inc., press release (August 10, 1995)