Affiliated Managers Group of Boston announced last week that it has privately sold approximately $175 million in 20-year zero-coupon convertible senior bonds. Affiliated Managers Group is a holding company for 15 affiliates that collectively manage almost $70 billion in assets. Its affiliates include Essex Investment Management of Boston, The Managers Fund of Norwalk, Conn., and Tweedy Browne Company of New York and London.
The company announced that the bonds were priced at 90.495 cents on the dollar, and carry a yield to maturity of 0.5 percent. The bonds may be converted into common shares of Affiliated Managers Group's stock at $77.88 per share, under specified conditions. The sale is expected to close on May 7, said Darrell W. Crate, senior vice president and chief financial officer for Affiliated Managers.
The company intends to use the proceeds of the sale to pay down existing debt. The company currently is carrying $147 million in debt, at a floating rate of six to seven percent, Crate said.
"The coupon on this [bond] is 50 basis points," he said. "So you can see that it will certainly lower the cost of capital." After paying off the debt, and accounting for expenses, the company should be left with approximately $21 million in excess to invest, Crate said.
This sale is at least the second instance of a company in the mutual fund industry in recent weeks using convertible bonds as a means of low-cost financing. On April 24, Stillwell Financial of Kansas City, Mo., the parent company of Janus Capital Corp. of Denver, announced the sale of $600 million of convertible bonds with a yield to maturity of one percent.