The six debentures and loan notes, with maturities ranging from 1996 to 2018, carry an average coupon of more than 10 per cent. Hanson expects to be able to refinance the loans at about half that cost, saving about dollars 57m. Hanson said when it announced the acquisition of Quantum, which was completed last Thursday, that it expected to save about dollars 125m in total by refinancing the debt.
The group said yesterday it was 'reviewing its alternatives' on the other outstanding debt, most of which is not currently redeemable, and may make open-market and private purchases. The costs of the refinancing will be included in a pounds 159m pre-acquisition provision for the cost of the merger. Martin Taylor, Hanson's vice-chairman, said the refinancing was a 'material proportion' of that charge.
The City liked the speed of the arrangements and Hanson's shares rose 6.5p to 260p. Since the deal was announced, they have outperformed the market by almost 7 per cent.
Geoff Allum, conglomerates analyst with NatWest Securities, said he expected the rest of the debt to be refinanced soon. 'Hanson has the highest credit rating of any industrial company in the world.' He said the refinancing would mean Hanson could wait for an upturn before it sells off peripheral parts of the Quantum business.
Quantum is the largest US manufacturer of polyethylene, but it has been badly hit by the recession. It made a net loss of dollars 288m last year - compared with operating profits of dollars 720m in 1988 - and liabilities exceeded assets by dollars 471m. Much of its debt arose three years ago, when it paid a dollars 50-a-share special dividend to shareholders because of fears of a hostile takeover.
As well as taking on the dollars 2.5bn debt, Hanson paid dollars 720m for Quantum's shares. Lord Hanson, chairman, said in July that he expected the interest savings and other cost-cutting measures would see Quantum back in profit next year. The group also promised that the deal would not dilute earnings.
Hanson already owns a US chemical company, SCM, which manufactures titanium dioxide. But it is unlikely that many of the operations will be combined.
The offer document revealed that nine directors of Quantum could share dollars 18.7m, even if they stay, and could take a further dollars 9.8m in enhanced pension benefits if they leave or are sacked.Reuse content