Mezz notes in Focus

Focus achieved a strong result with the refinancing of £100m in mezzanine notes following its separation from Wickes. The company, which is owned by Duke Street and Apax, is refinancing the debt after the Wickes part of the business was sold for £950m to Travis Perkins.

Focus pioneered the mezzanine note structure two years ago and the current refinancing is part of a wider deal that also includes £210m in loans. Bookrunner ING launched the issue at par to yield 9.381%, with a coupon of 9.375%, and a spread of 462bp over UK Treasuries. Pricing was at the low end of 9.375% to 9.625% guidance.

Despite being issued at par, the coupon and the yield are slightly different due to the unusual semi-annual coupon dates of June 3 and December 3. This arrangement was also included in the original deal, allowing Focus to match the coupon on the bonds with cash outflows.

The mezzanine notes were a trade-off for investors, however. Subscribers renounced call protection in the first four years, but gained better credit protection and yield.