Advanced Medical Optics $275 million convertible talked at 2.5%-3.0%, up 40%-45%

By Ronda Fears

Nashville, June 15 - Advanced Medical Optics Inc. launched after the close Tuesday $275 million of 20-year convertible notes talked to yield 2.5% to 3.0% with a 40% to 45% initial conversion premium.

Lehman Brothers, Banc of America Securities and Morgan Stanley & Co. Inc. are joint bookrunners of the Rule 144A deal, which is slated to price after the market close Wednesday.

The senior subordinated notes will be non-callable for 5.6 years, with puts in years 5.6, 10 and 15. There is a 130% contingent conversion trigger and 120% contingent payment trigger.

Holders will have full dividend protection by way of a conversion ratio adjustment.

Cash takeover protection for holders also is included, according to market sources.

A $55 million greenshoe is available.

Santa Ana, Calif.-based Advanced Medical Optics, which makes ophthalmic surgical and contact lens care products, said up to $84 million of proceeds would be used to repurchase up to $70 million of its outstanding 9.25% senior subordinated notes due 2010 and make related consent payments pursuant to a cash tender offer and consent solicitation commenced on June 9 for those notes.

Remaining proceeds are earmarked to fund a portion of the $450 million cash purchase price for the pending acquisition of the ophthalmic surgical business of Pfizer Inc., and for general corporate purposes.

Also Tuesday, Advanced Medical Optics said it expects the combined revenue from its existing business and the Pfizer assets to be $800 million to $830 million, up from the company's stand-alone revenue forecast of $635 million to $645 million. Combined pro forma diluted earnings per share for 2005 are now projected at $1.50 to $1.70., up from the company's earlier guidance for $1.02 to $1.04.

Advanced Medical Optics is scheduled to report second quarter results, review guidance and host a conference call with investors and analysts on July 28.

The Pfizer purchase was announced April 21, and Standard & Poor's affirmed its credit ratings for Advanced Medical Optics on the news, but Moody's put the debt under review for possible downgrade.

Advanced Medical Optics' new convertible is expected to be rated B2 by Moody's and B by S&P.

Last week, Advanced Medical Optics launched a new $385 million credit facility, consisting of a $275 million term loan and an amended $110 million revolver, with those proceeds also going toward the Pfizer purchase.

In early June, Advanced Medical Optics announced the exchange of $83 million of its 3.5% convertible senior subordinated notes due 2023 for 4.4 million shares of stock and $4.6 million in cash, which the company attributed to the increase in its stock price on the Pfizer acquisition.

In addition, the company said it needed to increase equity in order to access the capital markets to fund the acquisition. With the company's Japanese subsidiary repaying a ¥2.5 billion term loan and the exchange, Advanced Medical Optics said stockholder equity was boosted by $76 million.

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