Penson reaches preliminary agreement to reduce debt via exchange offer

By Angela McDaniels

Tacoma, Wash., March 13 - Penson Worldwide, Inc. plans to restructure its debt through an exchange offer. The restructuring would eliminate $176 million of debt, according to a company news release.

Under the proposed restructuring

• Penson's $200 million of 12½% senior secured second-lien notes due 2017 would be exchanged for $100 million of 12½% senior secured first-lien notes due 2017 and $100 million of newly issued non-convertible 12½% series A senior preferred stock redeemable in 2017 with 80% voting rights across all classes of Penson's equity securities. The coupon and the dividends would be payable in kind.

Entities representing more than 50% of the notes have agreed to support these terms;

• Penson's $60 million 8% senior convertible notes due 2014 would be exchanged for $5 million of senior secured notes, $20 million of the series A preferreds, $35 million of newly issued, perpetual, non-convertible and limited voting series B preferreds and newly issued shares of common stock representing 51.6% of Penson's post-exchange common stock. The series B preferreds would have a 12½% PIK dividend.

Entities representing about 70% of the convertibles have agreed to these terms; and

• Broadridge Financial Services, Inc., which holds a seller note due 2015 with an original principal amount of $21 million and a coupon of Libor plus 550 bps, has agreed to exchange its note for Penson common stock representing, together with its existing holdings, 9.9% of Penson's post-exchange common stock.

The exchange offer is subject to formal approval by the holders of at least 95% of the 12½% notes and 95% of the convertible as well as approval by Broadridge and regulators.

The company intends to close the transactions as soon as practicable.

After giving effect to the exchange, the existing common stockholders (excluding Broadridge) would hold 38.5% of Penson's outstanding common stock.

In addition, there would be $105 million of the new first-lien notes, $120 million liquidation preference of series A preferreds and $35 million liquidation preference of series B preferreds outstanding.

Following the consummation of the exchange, the company will consider effecting a reverse stock split.

The exchange offer is part of the company's strategic initiatives to strengthen its balance sheet, increase liquidity and improve performance in the face of challenging industry conditions.

"Our plan is to get Penson to be as close as possible to break even on a cash basis in the second half of 2012," chief executive officer Philip Pendergraft said in the release.

"While we are current with all our debt and interest payments, we believe this is the best way to speed the transition to our new model in the face of today's lower trading volumes and prolonged low interest rates."

Dallas-based Penson Worldwide provides execution, clearing, custody, settlement and technology infrastructure products and services to financial services firms.

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