The Marcus Corporation Announces Completion of Private Offering of $100 Million Senior Notes and $86.4 Million Convertible Senior Notes Repurchases

Rhea-AI Summary

The Marcus (NYSE: MCS) has completed a $100 million private placement offering of senior notes and is finalizing $86.4 million in repurchases of convertible senior notes. The refinancing extends debt maturities and simplifies the company's capital structure. The offering includes two tranches: $60 million of 6.89% senior notes due 2031 and $40 million of 7.02% senior notes due 2034. The net proceeds will be used to refinance the repurchases of 5.00% Convertible Senior Notes due 2025 and for general corporate purposes. After the repurchases, $13.649 million of convertible notes will remain outstanding. The company plans to settle these with cash at or before maturity.

Positive

• Successful completion of an oversubscribed $100 million private placement offering
• Extension of debt maturities, improving financial flexibility
• Significant simplification of capital structure
• Elimination of potential future shareholder dilution from convertible notes
• Strong investor support indicated by oversubscribed offering

Negative

• Increase in interest rates on new senior notes (6.89% and 7.02%) compared to retired convertible notes (5.00%)
• Final cash cost of repurchases at $87.9 million, slightly higher than the principal amount repurchased

Insights

Financial Analyst

The Marcus Corporation's recent financial maneuvers illustrate a strategic effort to bolster its balance sheet by extending debt maturities and simplifying its capital structure. This move can be interpreted as a proactive measure to mitigate refinancing risks in the near term. The issuance of $100 million in senior notes divided into Tranche A (6.89% due 2031) and Tranche B (7.02% due 2034) provides the company with longer-term financing at fixed interest rates, which can be beneficial in an increasing interest rate environment. The retirement of $86.4 million in convertible senior notes also eliminates potential dilution for shareholders, which could be positively viewed by the market, as it preserves equity value.

However, it is important to note that the new senior notes carry higher interest rates (6.89% and 7.02%) compared to the retired convertible senior notes (5.00%). This will lead to higher interest expenses moving forward, which may impact the company's net earnings. Investors should consider whether the extended maturities and simplified capital structure outweigh the increased cost of debt.

Overall, the transactions are essentially a trade-off between higher debt costs and reduced refinancing risk, which may be seen as favorable in the current economic climate.

Legal Expert

The legal structuring of the Marcus Corporation's senior notes offering is also quite noteworthy. By offering these notes only to qualified institutional buyers under Rule 144A and non-U.S. persons under Regulation S, the company avoids the complex and costly requirements of registering the notes under the Securities Act. This approach is commonly used to expedite the offering process and reduce regulatory burden, which can be particularly advantageous for urgent capital raising. The guarantees provided by the company's restricted subsidiaries, which share the same collateral securing existing senior notes and credit facilities, offer additional security to the new noteholders, potentially lowering the risk profile of the new debt issuances.

Such legal considerations ensure that the company remains compliant with securities regulations while attracting investors through structured and secured offerings.

Market Research Analyst

The successful oversubscription of The Marcus Corporation's private placement is a clear indicator of investor confidence in the company's strategic direction and financial health. The strong demand from both new and existing investors suggests that the market perceives the company as a stable and promising investment despite the higher interest rates on the newly issued senior notes. This confidence can be attributed to the company's transparent communication regarding the use of proceeds, which are earmarked for debt refinancing and general corporate purposes, ensuring investors of a focused deployment of funds.

From a market perspective, reducing the amount of convertible debt diminishes potential future equity dilution, which is often a concern for existing shareholders. Additionally, by extending the debt maturities, the company aligns its financial obligations with its long-term strategic goals, potentially stabilizing its financial outlook in the eyes of investors.

MILWAUKEE--(BUSINESS WIRE)-- The Marcus Corporation (NYSE: MCS), announced today the completion of a private placement offering of $100 million aggregate principal amount of senior notes, and the soon to be completed repurchases and retirement of $86.4 million of aggregate principal amount of senior convertible notes. The refinancing transactions extended debt maturities and mark a significant step in simplifying the Company’s capital structure.

Summary of Transactions

• The Company raised $100 million from new and existing investors through an upsized and oversubscribed private placement offering (the “Offering”) of senior notes in two tranches issued at a price of 100.00% of the aggregate principal amount thereof:
  • Tranche A - $60 million aggregate principal amount of 6.89% senior notes due 2031 (final maturity of 7 years with amortization payments starting on the third anniversary of the closing) (the “Tranche A Notes”); and
  • Tranche B - $40 million aggregate principal amount of 7.02% senior notes due 2034 (final maturity of 10 years with amortization payments starting on the fourth anniversary of the closing) (the “Tranche B Notes” and, collectively with the Tranche A Notes, the “Offered Notes”).

The Offered Notes are guaranteed by the Company’s restricted subsidiaries that guarantee its existing senior notes and credit facility, and share in the same collateral securing those obligations.

• The net proceeds of the Offering will be used to refinance the previously disclosed $86.4 million aggregate principal amount of privately negotiated cash repurchases effected over two separate repurchase tranches (the “Repurchases”) of the Company’s 5.00% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”) and for general corporate purposes. The first repurchase transaction retired $40 million of principal of Convertible Senior Notes and closed on June 14, 2024, and the second repurchase transaction will retire $46.4 million of principal of Convertible Senior Notes upon closing expected to occur on or about July 16, 2024. In connection with the Repurchases, the Company entered into unwind agreements with certain financial institutions to terminate a portion of the existing capped call transactions in a notional amount equal to the aggregate principal amount of the Repurchases. Upon closing, the final cash cost of the Repurchases, net of the cash received from the unwind of the capped call transactions, will be $87.9 million.

Following the completion of the Repurchases, $13.649 million aggregate principal amount of the Convertible Senior Notes are expected to remain outstanding. The Company intends to settle the remaining Convertible Senior Notes with cash and consideration received from settlement of the remaining capped call transactions (if any) at or prior to maturity.

“We were thrilled by the strong show of support that we received from new and existing investors who participated in our oversubscribed and competitively priced notes offering,” said Chad Paris, chief financial officer of The Marcus Corporation. “Notably, we achieved our goals of extending maturities and significantly simplifying our capital structure by retiring a substantial majority of our convertible notes at attractive pricing and eliminating potential future dilution from the convertible notes for our shareholders.”

The Offered Notes have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the rules promulgated thereunder and applicable state securities laws. The Offered Notes have been and will be offered only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act and non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act.

J. Wood Capital Advisors served as financial advisor for the Repurchases. Bank of America Securities served as private placement agent for the Offering. Foley & Lardner LLP served as legal counsel to The Marcus Corporation in the Offering and the Repurchases.

Forward-Looking Statements

Certain matters discussed in this press release are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to the factors discussed in our 2023 Annual Report on Form 10-K under “Risk Factors,” which is on file at the U.S. Securities and Exchange Commission, and in our subsequent filings. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our forward-looking statements are based upon our assumptions, which are based upon currently available information. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

About The Marcus Corporation

Headquartered in Milwaukee, The Marcus Corporation is a leader in the lodging and entertainment industries, with significant company-owned real estate assets. The Marcus Corporation’s theatre division, Marcus Theatres^®, is the fourth largest theatre circuit in the U.S. and currently owns or operates 995 screens at 79 locations in 17 states under the Marcus Theatres, Movie Tavern® by Marcus and BistroPlex® brands. The company’s lodging division, Marcus® Hotels & Resorts, owns and/or manages 16 hotels, resorts and other properties in eight states. For more information, please visit the company’s website at www.marcuscorp.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240715711758/en/

Chad M. Paris

(414) 905-1100

Source: The Marcus Corporation

FAQ

What is the total amount of The Marcus 's (MCS) recent private placement offering?

The Marcus (MCS) completed a $100 million private placement offering of senior notes.

How much of its convertible senior notes is The Marcus (MCS) repurchasing?

The Marcus (MCS) is repurchasing $86.4 million aggregate principal amount of its 5.00% Convertible Senior Notes due 2025.

What are the interest rates and maturities of the new senior notes issued by The Marcus (MCS)?

The Marcus (MCS) issued two tranches of senior notes: $60 million at 6.89% due 2031 and $40 million at 7.02% due 2034.

How will The Marcus (MCS) use the proceeds from the new senior notes offering?

The Marcus (MCS) will use the proceeds to refinance the $86.4 million repurchase of convertible senior notes and for general corporate purposes.

What is the remaining amount of convertible senior notes for The Marcus (MCS) after the repurchases?

After the repurchases, $13.649 million aggregate principal amount of The Marcus 's (MCS) Convertible Senior Notes are expected to remain outstanding.