Tanger pivots from bank loans to CB market
After reworking its bank facilities, Tanger secured an upsized US$220m late on Wednesday from the sale of a convertible bond issue that pre-funds the maturity of straight debt coming due later this year.
Bank of America, Truist Securities, Wells Fargo and TD Securities were joint bookrunners on the pricing of five-year CBs at a 2.375% coupon and 22.5% conversion premium, the midpoints of 2.125%–2.625% and 20%–25% talk marketed for one day.
ICR Capital was independent financial adviser.
The shopping mall REIT’s shares fell just 0.4% over the one-day marketing period on Wednesday to US$33.92, putting the conversion price on the CBs at US$41.55. Tanger spent a portion of the proceeds on a capped call to offset dilution from the CBs up to a share price of US$47.49, above the US$42.20 all-time high the stock traded at in 2016.
The muted share-price reaction reflected Tanger’s concurrent repurchase of 600,000 shares (US$20m), which it loaned to arbs participating in the CB offering to hedge their downside exposure.
“As an investment-grade credit, Tanger certainly could have done a larger deal size,” said one banker involved in the offering. “But they wanted to meet specific funding needs. The interest-rate arbitrage between the CBs and where they could have funded in the straight debt markets was too attractive to pass up.”
Tanger, rated Baa3/BBB–, is using the proceeds to pre-fund US$350m principal of 3.125% straight debt that matures in September.
In conjunction with the deal launch, Tanger revealed it had closed on a new US$550m bank facility, comprising an enlarged US$350m term loan maturing in late 2030 and a new US$200m loan maturing early 2033. The initial margin on the longer-dated facility is SOFR+125bp.
The banks marketed the CBs at a credit spread of SOFR+115bp, tighter than the longer-dated bank loan, and implied vol of 24.
Tanger paid a third-quarter dividend of 29.25 cents, implying a 3.4% annual yield at the current share price. The REIT’s US$400m principal 2.75% straight debt due 2031, issued in 2021 and its longest-dated security, trades at 90.5 to yield 4.7%.
With interest rate cuts expected later this year, REIT stocks are on the mend and companies are taking advantage of the CB market to lock in low-cost funding.