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MONTVALE, N.J. -- The Great Atlantic & Pacific Tea Co., Inc. has set the pricing of its previously announced public offering at $150 million aggregate principal amount of convertible senior notes due 2011, and $230 million aggregate principal amount of convertible senior notes due 2012.
The grocer has also granted to the underwriters of the notes offering options to buy up to an additional $15 million aggregate principal amount of the 2011 notes and $25 million aggregate principal amount of the 2012 notes, solely to cover overallotments, in each case within 13 days of the initial issuance of the notes. Banc of America Securities, LLC and Lehman Brothers Inc. acted as joint book running managers for the offering.
The notes will be convertible, under certain circumstances, at the holder's option, at an initial conversion rate of 27.4725 shares of A&P's common stock per $1,000 principal amount of the 2011 notes and 26.4550 shares of the company's common stock per $1,000 principal amount of the 2012 notes. This represents an initial conversion price of about $36.40 per share for the 2011 notes and about $37.80 per share for the 2012 notes, as well as a 30 percent conversion premium for the 2011 notes and a 35 percent conversion premium for the 2012 notes, in each case based on the offering price of $28 per share of A&P common stock. The principal amount of the notes will be convertible into shares of the grocer's common stock, cash, or a combination of stock and cash, at A&P's option.
In relation to the offering, the company has entered into convertible note hedge and warrant transactions with financial institutions that are affiliates of the underwriters of the notes to increase the effective conversion price of the notes, and to reduce the potential dilution on future conversion of the notes. The net cost of the convertible note hedge and warrant transactions was $32.8 million.
A&P plans to use the net proceeds of the notes offering, together with a borrowing under the grocer's ABL facility and cash on hand, to repay debt outstanding under the company's bridge loan facility, which was used to finance in part the purchase of Pathmark and to pay the cost of the convertible note hedge transactions.
At the same time as the pricing of the notes and the entry into the convertible note hedge and warrant transactions, A&P entered into share-lending agreements with affiliates of Banc of America Securities and Lehman Brothers, according to which the affiliates may require the A&P to lend to them a maximum of 11,278,988 shares of its common stock. The share-lending agreements will terminate if the convertible notes offering isn't completed.
The public offerings of the notes and the shares are expected to close Dec.18, and will be subject to the satisfaction of various customary closing conditions.
A&P operates 455 stores in eight states and the District of Columbia under the following banners: A&P, Pathmark, Waldbaum's, The Food Emporium, Super Foodmart, Super Fresh, and Food Basics.