Diageo prices exchange offer for 7.375% notes issued by Diageo Capital

By Angela McDaniels

Tacoma, Wash., May 10 - Diageo plc and Diageo Capital plc determined the coupon for the new notes to be issued in the exchange offer for Diageo Capital's 7.375% notes due 2014 and set the cash amount to be paid to holders who tender, according to a company news release.

The company is offering new notes in exchange for up to $1 billion of the 7.375% notes. Like the 7.375% notes, the new notes will be issued by Diageo Capital and guaranteed by Diageo.

For each $1,000 principal amount of notes tendered and accepted for exchange, the company will issue $1,000 principal amount of new 4.828% notes due 2020 and pay $180.13 in cash.

The 4.828% coupon was calculated as 100 basis points over the 3.524% yield on the 3.625% Treasury security due Feb. 15, 2020 plus an additional 30.4 bps in respect of accrued interest on the 7.375% notes up to but excluding the settlement date. Because of this, holders will not receive a cash payment for accrued interest on the old notes at settlement.

The total cash consideration is equal to the difference between:

• The discounted value from the settlement date to maturity of the remaining payments of principal and interest using a discount rate equal to the sum of the 1.736% bid-side yield of the 1.5% U.S. Treasury note due Dec. 31, 2013 plus a spread of 50 bps; and

• $1,000.

The total cash consideration includes an early exchange premium of $50.00 for each note tendered by 5 p.m. ET on April 27, the early exchange date.

The exchange offer will expire at 5 p.m. ET on May 12.

The offer began April 14 and is subject to the receipt of tenders for at least $500 million principal amount of notes.

Goldman Sachs & Co. (800 828-3182 or call collect 212 902-5128) and J.P. Morgan Securities Inc. (866 834-4666 or call collect 212 834-3424) are the dealer managers. Global Bondholder Services Corp. (866 857-2200 or call collect 212 430-3774) is the information agent.

Diageo produces alcoholic beverages and is based in London.

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