Finlay gets consents for 8 3/8% notes, exchanges $139.64 million for PIK notes, sells $20 million notes

By Jennifer Chiou

New York, Dec. 3 - Finlay Fine Jewelry Corp. said it obtained consents from holders of $162.8 million, or 81.4%, of its 8 3/8% senior notes due 2012, allowing it to exchange some of the notes for new third-lien senior secured PIK notes and sell $20 million of new second lien senior secured PIK notes.

The successful solicitation allowed the company to execute a supplemental indenture with the trustee, HSBC Bank USA, NA.

The consent and wavier solicitation expired at 5 p.m. ET on Nov. 25 and the exchange and issuance of the new notes settled on Nov. 26.

As previously announced on Nov. 17, majority holders had agreed to exchange their notes for new third-lien senior secured pay-in-kind notes due June 1, 2012 and to purchase new second-lien secured PIK notes due June 1, 2012. At the time, the indenture governing the 8 3/8% notes prohibited the company from carrying out the transactions.

In addition to soliciting consents to amend the indenture, the company also sought waivers of the indenture provisions that would otherwise prevent it from consummating the transactions. The company said the waivers would give it the ability to proceed with the transactions prior to or without entering into any formal amendment of the indenture.

Finlay needed consents and waivers from holders of at least a majority of the notes.

The company previously said it reserves the right to allow minority noteholders who deliver consents and waivers to participate in the transactions on substantially the same terms as the majority noteholders.

Exchange offer details

Under the exchange offer, the company issued an equal amount of third-lien notes in exchange for the $139.64 million of notes exchanged.

The third-lien notes will pay 8 3/8% interest in cash or 8.945% in kind, at the company's option, through December 2010 and at 8 3/8% in cash afterward.

The notes are callable immediately at 104.188, declining to 102.094 on June 1, 2009 and par on June 1, 2010.

Noteholders who exchange will be required to forgo the interest payment due on Dec. 1 and will instead receive in-kind interest for the third-lien notes. The company noted when it announced the solicitation that if it extended the expiration date of the consent and waiver solicitation it may delay the interest payment.

Second-lien issue

The majority holders also purchased $20 million of the new second-lien notes. If minority noteholders had also participated in the exchange offer and note purchase, the amount of second-lien notes would have been increased proportionately.

The second-lien notes will pay 11 3/8% interest in cash or 12 1/8% in kind, at the company's option, through December 2010 and at 11 3/8% in cash afterward.

The notes are callable immediately at 105.688, declining to 102.844 on June 1, 2009 and par on June 1, 2010.

Closing of the transactions was subject to conditions that include documentation and a waiver by senior bank lenders.

Finlay is a New York-based jewelry retailer and a subsidiary of Finlay Enterprises Inc.

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