Institutional US broker INTL FCStone Inc (NASDAQ:INTL) has announced that it will sell Senior Secured Notes to investors in an effort to fund part of the cash transaction planned for the merger with GAIN Capital Group Holdings, Inc. for later this year. The merger was earlier approved by a vote of the Board of Directors at GAIN Capital and has received positive reviews from Standard & Poors, which has already given the Notes a rating of ‘BB-‘.
The Notes and the related Note guarantees will be offered in a private offering to qualified institutional buyers and to certain persons outside the United States. INTL FCStone indicated that it intends to use the net proceeds from the sale of the notes, together with cash on hand, to fund the cash consideration for the merger of the company’s wholly-owned subsidiary and GAIN Capital Holdings, Inc., with GAIN surviving as the company’s wholly-owned subsidiary, fund the repayment of GAIN’s 5.00% Convertible Senior Notes due 2022 and pay certain related transaction fees and expenses.
S&P for its part affirmed that S&P sees Gain Capital as “a good strategic fit for INTL, with no material erosion in funding or liquidity”. Although pro forma for the acquisition, the risk-adjusted capital (RAC) ratio is slightly below 8%, S&P expects INTL to operate Gain with lower market risk than it operated with as an independent company.
Given that both firms’ profitability has benefited from higher market volatility so far in 2020, S&P believes that retention of improved earnings and lower market risk at Gain as part of INTL will support a RAC ratio above 8%.