Marvel announced last week that it had arranged for a new senior credit facility with HSBC Bank USA (HongKong & Shanghai Banking Corp.), with two components. The $20 million revolving letter of credit facility replaces the letters of credit previously issued by a company controlled by majority stockholder Isaac Perlmutter (see 'Marvel Cash-flow Positive in Q2'). And the $60 million three year term loan is only for the purpose of purchasing back Marvel 12% Senior Notes due 2009, under specified conditions. Those conditions include a limitation on the price that can be paid, as well as setting January 31, 2002 as the last date on which transactions can be completed. Perlmutter is guaranteeing 'a portion of the company's obligations to the bank.'
The replacement of the letter of credit financing is of minor note; the bank loan to purchase back Senior Notes is more interesting. This continues an effort begun last quarter to reduce Marvel's long-term debt, when $51 million in Marvel notes was swapped and purchased at prices that represented over a 50% discount from face value (see 'Publishing Improves in Marvel's First Quarter'). Presumably the conditions of the bank financing provide for similar haircuts for bondholders. This is essentially the exchange of long-term for medium-term debt, at a lower interest rate. Marvel's increase in accounts payable and other short term liabilities last quarter at the same time as it purchased back notes at a discount was essentially the exchange of long-term for short-term debt. Current interest rates are extremely low by the standard of recent years, and that certainly has something to do with these moves. Bondholders may also be expressing a degree of concern about risk by their willingness to take discounts. But shortening the term of this debt, and with the bank financing guaranteed by Perlmutter, indicates a degree of confidence by management and its largest shareholder that new debt or equity will be issued in the next few years.
Perlmutter also was granted almost 9 million warrants and options in conjunction with two deals announced in the same release. He received up to 5 million five-year warrants at current market price in exchange for guaranteeing bank debt. And he was granted 3.95 million 'market-priced common options' for compensation as Vice-Chairman over the next six years. Those grants give Perlmutter the ability to pocket any future increase in share price on shares representing 20% of the company. That's a big number, but it's worth nothing if shares don't go up. And he will also be forgoing any pay for his role as Vice-Chairman (although there's any amount specified if stockholders don't approve the option grant). The transactions with Perlmutter were handled by a Special Committee of independent directors which had its own counsel, investment bankers, and compensation consultants.