Reduces Debt, Extends Maturity, and
Clarifies Capital Structure; Allows Company to Focus on Long Term
Strategy
Pulse Electronics Corporation (NYSE:PULS), a leading provider of
electronic components, today announced it has reached agreements
with the holders of approximately $20.7 million of the company’s
$22.3 million outstanding 7% convertible senior notes due 2014 to
exchange their notes for various combinations of the company’s
existing Term B Loan, newly issued common stock, and cash. The
exchange transactions will reduce the company’s outstanding debt
and the amount of cash required for debt service and will extend
the maturity of the exchanged debt beyond 2014, allowing the
company to further focus on its long term strategy and the
execution of its business plans.
The company has also reached agreement with certain affiliates
of investment funds managed by Oaktree Capital Management L.P.
(“Oaktree”), to convert all its holdings of the company’s Series A
preferred stock to common stock immediately in connection with the
closing of the exchange transactions.
In relation to Oaktree’s increased common stock ownership, the
company agreed to increase the size of its board of directors from
seven to nine members and to appoint three Oaktree designees to the
board upon closing of the transactions.
“I am very pleased that the noteholders have accepted Pulse’s
exchange offers,” said Pulse Chairman and Chief Executive Officer
Ralph Faison. “We believe these exchange transactions represent the
best possible outcome for all stakeholders and put our immediate
financing issues behind us, allowing Pulse to look to the future as
we build on our operational improvements and focus on opportunities
to grow our business.
“The exchange transactions immediately reduce our debt by nearly
$5 million and extend the maturity of the exchanged debt to 2017,”
Mr. Faison continued. “We achieved this with significantly less
dilution of our existing shareholders than we originally
illustrated, and they will retain a significantly greater share of
total equity than the maximum dilution that was contemplated at the
original refinancing in 2012. Further, the transactions enable
Oaktree to convert their preferred stock into common stock at the
ratio we envisioned in 2012, which we believe will clarify the
ultimate capital structure of the company.
“We welcome the new members designated by Oaktree to our board
of directors,” said Mr. Faison. “Oaktree’s representation provides
a direct linkage between the company and its largest shareholder,
and we look forward to the expertise they will bring to the pursuit
of the company’s objectives.”
The company also reported that it expects its fourth quarter
revenue and non-GAAP operating profit results to be consistent with
the outlook provided in November 2013, subject to normal year-end
audit and related activities currently in process.
The Exchange
Transactions
The company reached individual agreements with the holders of
over 90% of its 7% convertible senior notes through independent
negotiations. The company believes the pursuit of separate
agreements allowed for greater flexibility in the types of
consideration offered and a higher likelihood of success than could
have been achieved through a single public exchange offer. In
aggregate, the company will issue approximately $14.9 million of
new debt under its existing Term B Loan and 1.1 million shares of
its common stock and pay $2.1 million in cash for approximately
$20.7 million of the outstanding $22.3 million of convertible
senior notes.
The new Term B Loans will have the same terms as the Term B
Loans issued in the company’s refinancing transaction with Oaktree
in November 2012. The interest rate is 10% per annum and, at the
company’s election, is payable-in-kind through November 20, 2015.
The Term B Loans mature on November 20, 2017, and are secured by a
first priority lien on the shares and assets of certain domestic
and international subsidiaries. It is non-amortizing and may be
prepaid without any penalty; however the Term B Loans may not be
repaid until the existing Term A Loans issued in the 2012
refinancing are paid in full.
In connection with the exchange transactions, Oaktree has
agreed, among other things, to modifications of certain financial
covenants of the secured term loans through maturity, which the
company believes will allow greater flexibility to execute its
long-term strategy. In consideration for such covenant modification
and other amendments and waivers to the credit agreement, the
company will pay Oaktree an amendment payment of 1.5% of amounts
outstanding under the facility prior to the exchange transactions,
which will be capitalized and added to the principal of the
outstanding Term A Loans and Term B Loans held by Oaktree on a pro
rata basis.
Also in connection with the closing of the exchange
transactions, Oaktree has agreed to convert the 1,000 shares of
Series A preferred stock held by it into approximately 8.2 million
additional shares of Pulse common stock as prescribed by the
Investment Agreement signed in November 2012 as amended. Following
conversion of the Series A preferred stock, Oaktree will own
approximately 68.7% of the outstanding common stock of the company
(not including common stock and common stock equivalents acquired
by Oaktree prior to the transactions contemplated by the Investment
Agreement that closed in November 2012).
Board of Directors
Expansion
In connection with the exchange transactions, the company also
has agreed to appoint three of Oaktree’s designees to the company’s
board of directors and to expand the current number of directors of
the board from seven to nine. The Oaktree designees as of the
closing of the exchange transactions shall be Michael Kreger, Ken
Liang and Kaj Vazales. The company has also agreed that, in
connection with any meeting of its shareholders at which directors
are to be elected, Oaktree shall have the right to designate
individuals to the company’s slate of director nominees in
proportion to its equity ownership of the company. So long as
Oaktree beneficially owns a majority of the outstanding common
stock it will have the right to designate no less than a majority
of the individuals comprising the members of such slate.
To facilitate the board reconfiguration, Daniel E. Pittard has
agreed to resign from the board, effective upon the consummation of
the exchange transactions.
The descriptions of the terms of the exchange transactions,
conversion of preferred stock, and board of directors
reconfiguration contained in this press release are a summary. No
assurances can be made that following the consummation of the
transactions, the company will be able to satisfy and maintain the
continuing listing standards of the NYSE or that the common stock
will continue to be listed for trading on the NYSE or be registered
under Section 12 of the Securities Exchange Act of 1934, as
amended. The company encourages you to read the agreements that it
expects to file as exhibits to a Current Report on Form 8-K with
the Securities and Exchange Commission.
About Pulse Electronics
Corporation
Pulse Electronics is the electronic components partner that
helps customers build the next great product by providing the
needed technical solutions. Pulse Electronics has a long operating
history of innovation in magnetics, antennas and connectors, as
well as the ability to ramp quickly into high-quality, high-volume
production. The company serves the wireless and wireline
communications, power management, military/aerospace and automotive
industries. Pulse Electronics is a participating member of the
IEEE, SFF, OIF, HDBaseT Alliance, CommNexus, and MoCA. Visit the
Pulse Electronics website at www.pulseelectronics.com.
Safe Harbor
This press release contains statements, including projections of
future business objectives and financial results, that are
"forward-looking" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and
uncertainties. These forward-looking statements are based on the
company's current information and expectations. There can be no
assurance these forward-looking statements, including, without
limitation, the company’s results for the fourth quarter, will be
achieved, or that it will have the ability to execute its business
strategy and grow its business. Actual results may differ
materially due to the risk factors listed from time to time in the
company's SEC reports including, but not limited to, those
discussed in its Current Reports on Form 8-K, Quarterly Reports on
Form 10-Q and Annual Reports on Form 10-K. All such risk factors
are incorporated herein by reference as though set forth in full.
The company undertakes no obligation to update any forward looking
statement.
Copyright © 2014 Pulse Electronics Corporation. All rights
reserved. All brand names and trademarks are properties of their
respective holders.
Pulse Electronics CorporationJim ButlerSr. Director of Finance
and Treasurer858-674-8183jbutler@pulseelectronics.com