Iron Mountain Calms Bondholders on $2.2 Billion Payout: Corporate Finance

Posted on Apr 21, 2011 in Records Management News

By Sapna Mahesh­wari and Danielle Kucera — Apr 20, 2011 11:00 PM CT

Iron Moun­tain Inc. (IRM), the doc­u­ment– stor­age com­pany that was pres­sured by Elliott Man­age­ment Corp. to change its strat­egy, is per­suad­ing the bond mar­ket it can reward share­hold­ers with­out harm­ing its creditworthiness.

The company’s $300 mil­lion of 8 per­cent notes due June 2020 rose for the first time in six days yes­ter­day, gain­ing 0.25 cent to 103.5 cents on the dol­lar, accord­ing to Trace, the bond-price report­ing sys­tem of the Finan­cial Indus­try Reg­u­la­tory Authority.

Iron Moun­tain Chief Exec­u­tive Offi­cer Richard Reese assured debt investors yes­ter­day the Boston-based company’s lever­age would face no more than a “slight increase” as it returns $2.2 bil­lion to share­hold­ers through 2013. Last month, hedge fund Elliott Man­age­ment called for a review of Iron Moun­tain, cit­ing a loss of share­holder value from parts of its inter­na­tional and dig­i­tal businesses.

“The sources of the funds are com­ing, by and large, from oper­a­tions, free cash flow, as well as from a slight increase in our lever­age,” Reese, 65, who led the com­pany between 1981 and 2008 and resumed that role last week, said in a con­fer­ence call. “I want to be real clear to the debt mar­kets who might be lis­ten­ing, or hope­fully are lis­ten­ing, we’re talk­ing about going from a lit­tle under 3 times lever­aged to 3.5.”
12-Month Return

The return to share­hold­ers in the next 12 months will be $1.2 bil­lion, includ­ing “poten­tial one-time div­i­dends,” in addi­tion to quar­terly dis­tri­b­u­tions and share buy­backs, Iron Moun­tain said in a state­ment on April 19.

The 8 per­cent notes fell to 103.25 cents on the dol­lar that day to yield 7.46 per­cent, Trace data show. The debt traded at 107.6 cents with a 6.92 per­cent yield on March 2, Trace data show.

The aver­age B rated secu­rity yields 7.38 per­cent, accord­ing to Bank of Amer­ica Mer­rill Lynch index data. The senior sub­or­di­nated notes from Iron Moun­tain are graded B1 by Moody’s Investors Ser­vice and B+ by Stan­dard & Poor’s, accord­ing to data com­piled by Bloomberg.

Investors were con­cerned the com­pany might take on more debt to make pay­outs to fend off pres­sure from share­hold­ers, said Sabur Moini, a money man­ager who over­sees more than $2 bil­lion of high-yield debt at Los Angeles-based Pay­den & Rygel, includ­ing bonds from Iron Moun­tain.
‘Not Bondholder-Friendly’

“When­ever news like this comes out, it’s bad for the bonds because the expec­ta­tion is that the com­pany to save itself will have to do some­thing that’s not bondholder-friendly,” Moini said. “It prob­a­bly makes sense to take in more infor­ma­tion and not be one of the first to sell at a low print,” he said on April 19.

Iron Moun­tain ini­tially adopted a so-called poison-pill pro­vi­sion, meant to keep dis­si­dent investors from gain­ing con­trol of it. Last week, Bob Bren­nan resigned as CEO, and the com­pany said in an April 19 state­ment it plans to sell parts of its dig­i­tal unit and return cash to shareholders.

Iron Moun­tain also said it’s set­ting up a com­mit­tee to explore con­ver­sion into a real estate invest­ment trust as part of an agree­ment with Elliott Man­age­ment. REITs must pass on at least 90 per­cent of their annual tax­able profit to share­hold­ers through dividends.

New York-based Elliott Man­age­ment, run by Paul Singer, has said it owns “slightly under” 5 per­cent of Iron Mountain’s stock.

As part of its agree­ment with Elliott Man­age­ment, Iron Moun­tain also agreed to nom­i­nate Allan Loren, one of the company’s four can­di­dates, to its board at the 2011 annual meet­ing, sched­uled for June 10. Elliott Man­age­ment agreed to with­draw its other nom­i­nees at the event, Iron Moun­tain said.
Under­ground Facility

Iron Moun­tain, founded in an under­ground facil­ity near Hud­son, New York, in 1951, stores and main­tains mate­ri­als for clients, includ­ing records, elec­tronic files, med­ical data and e-mail, accord­ing to its most recent annual report. It works with more than 150,000 cor­po­ra­tions in North Amer­ica, Europe, Latin Amer­ica and Asia Pacific.

The com­pany, which had $2.9 bil­lion of long-term debt as of Dec. 31, went pub­lic in 1996 and joined the S&P 500 Index (SPX) in Jan­u­ary 2009, accord­ing to the filing.

Iron Mountain’s $548 mil­lion of 8.375 per­cent bonds matur­ing in August 2021 also rose yes­ter­day after falling since April 14, Trace data show. The debt climbed 1.5 cents to 106 cents on the dol­lar to yield 7.5 per­cent, the data show.

Before yesterday’s call, S&P, which assigns Iron Moun­tain a BB– grade, changed its out­look on the com­pany to “neg­a­tive” from “sta­ble,” accord­ing to an April 19 note.
‘Finan­cial Risk’

“We expect the com­pany will have to raise new debt and draw under its revolv­ing credit facil­ity to finance the entire planned $2.2 bil­lion,” S&P ana­lysts Tulip Lim and Andy Liu wrote in the note. “The trans­ac­tion will raise finan­cial risk amid uncer­tainty as to financ­ing terms.”

The pay­outs could increase the company’s debt to earn­ings before inter­est, taxes, depre­ci­a­tion and amor­ti­za­tion to more than five times from the “low” four times area now, the ana­lysts wrote. A debt to EBITDA ratio above 5.5 times would spur a down­grade, they wrote.

“More lever­age makes bond­hold­ers increas­ingly uncom­fort­able,” said Andrew Wittmann, an ana­lyst at Robert W. Baird & Co. in Milwaukee.

The company’s tar­get lever­age of 3.5 times looks “about right,” said Wittman, who has a “neu­tral” rat­ing on the stock. “Share­hold­ers feel very com­fort­able there, and I feel like bond­hold­ers should feel pretty com­fort­able as well,” he said.
Credit Swaps

Credit-default swaps on Iron Mountain’s sub­or­di­nated bonds fell after soar­ing on April 19 to the high­est since Sep­tem­ber, accord­ing to data provider CMA. The con­tracts, which typ­i­cally rise as investor con­fi­dence wors­ens and fall as it improves, fell 7 basis points to 418.9 yes­ter­day, CMA data show.

Default swaps pay the buyer face value if a bor­rower fails to meet its oblig­a­tions, less the value of the defaulted debt. A basis point equals $1,000 annu­ally on a con­tract pro­tect­ing $10 mil­lion of debt.

“Some could even argue we’re under-levered,” Reese said on the con­fer­ence call. “We think we’re appro­pri­ately lev­ered at this space, given where the busi­ness is and given the amount of cap­i­tal we’re talk­ing about and we think this is the right thing to do. But this is not com­ing from a big lever­age up for the busi­ness at this stage.”

To con­tact the reporters respon­si­ble for this story: Sapna Mahesh­wari in New York at sapnam@bloomberg.net; Danielle Kucera in New York at wkoenig@bloomberg.net

To con­tact the edi­tors respon­si­ble for this story: Alan Gold­stein at agoldstein5@bloomberg.net Tom Giles at tgiles@bloomberg.net

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Iron Mountain to Return Cash, May Sell Digital Assets

Posted on Apr 20, 2011 in Records Management News

Iron Moun­tain to Return Cash, May Sell Dig­i­tal Assets
By Danielle Kucera — Apr 20, 2011 9:45 AM CT

(Cor­rects story that ran April 19 to show Iron Moun­tain is con­sid­er­ing sell­ing only parts of its dig­i­tal business.)

Iron Moun­tain Inc. (IRM), the world’s largest doc­u­ment stor­age com­pany, said it will return cash to share­hold­ers and may sell parts of its dig­i­tal unit after pres­sure from hedge fund investor Elliott Man­age­ment Corp.

Iron Moun­tain also agreed to con­sider con­vert­ing to a real estate invest­ment trust, a move that Elliott encour­aged, Iron Moun­tain said in a state­ment today. One of Elliott’s nom­i­nees will join the Iron Moun­tain board, staving off a proxy fight in which the fund man­ager run by Paul Singer had sought four seats.

The New York-based hedge fund, which owns less than 5 per­cent of Iron Moun­tain, called for a review of the stor­age company’s strat­egy, oper­a­tions and cap­i­tal in a state­ment March 10, say­ing the company’s stock could more than dou­ble to $77 a share if it con­verted to a REIT and imple­mented its other proposals.

“Investors should be pleas­antly sur­prised that the return of cap­i­tal is quite sig­nif­i­cant,” said Andrew Wittmann, an ana­lyst at Robert W. Baird & Co. in Mil­wau­kee, who is neu­tral on the stock. “The 12-month plan is pretty aggres­sive, so they’re going to have to start pretty soon.”

The document-storage com­pany plans to return about $1.2 bil­lion to share­hold­ers dur­ing the next 12 months through stock repur­chases and div­i­dends and dis­trib­ute about $2.2 bil­lion through 2013, accord­ing to the state­ment. Iron Moun­tain took most of Elliott’s sug­ges­tions, Wittmann said.
Dig­i­tal Business

Iron Moun­tain, based in Boston, pro­vides busi­ness stor­age and main­tains doc­u­ments includ­ing records, elec­tronic files, med­ical data and e-mail. Iron Mountain’s effort to expand its inter­na­tional and dig­i­tal busi­nesses hasn’t been prof­itable enough, Elliott said in March.

Iron Moun­tain rose $1, or 3 per­cent, to $34.90 as of 4:15 p.m. in New York Stock Exchange com­pos­ite trad­ing. It has risen 33 per­cent since March 9, the day before Elliott called for a strate­gic review of the company.

“We strongly sup­port the board of direc­tors’ plan to increase stock­holder value with the actions announced today,” Ken Charles Fein­berg, co-portfolio man­ager at New York-based Davis Selected Advis­ers LLP, Iron Mountain’s largest investor as of March with a 21 per­cent share, said in the state­ment.
‘Strate­gic Alternatives’

Iron Mountain’s man­age­ment “con­cluded that the com­pany could not con­tinue invest­ing in tech­nol­ogy devel­op­ment and meet its return require­ments and that explor­ing strate­gic alter­na­tives for the dig­i­tal busi­ness was in the best inter­est of Iron Mountain’s stock­hold­ers,” accord­ing to the doc­u­ment– stor­age company’s state­ment. Options include a poten­tial sale of the company’s dig­i­tal archiv­ing and online backup services.

Less than two weeks after Elliott’s pro­posal, Iron Moun­tain adopted a so-called poison-pill pro­vi­sion, meant to keep investors from gain­ing con­trol of the com­pany. The share­holder– rights plan was a reac­tion to “extra­or­di­nary trad­ing activ­ity” in the company’s secu­ri­ties, said Stephen Golden, vice pres­i­dent of investor rela­tions at Iron Mountain.

Last week, Iron Moun­tain Chair­man Richard Reese took on the chief exec­u­tive offi­cer role after Bob Bren­nan stepped down as pres­i­dent and CEO.

As part of its pact with Elliott, Iron Moun­tain today agreed to nom­i­nate Allan Loren, one of Elliott’s can­di­dates, to its board of direc­tors at the 2011 annual meet­ing, sched­uled for June 10. Elliott agreed to with­draw its other nom­i­nees for the board at the event, Iron Moun­tain said.

Con­stan­tin R. Boden, a board mem­ber for more than 20 years, is retir­ing, accord­ing to the state­ment. The com­pany will work in tan­dem with Elliott and Davis Selected Advis­ers to fill the posi­tion with an inde­pen­dent can­di­date, Iron Moun­tain said.

Iron Mountain’s board plans to form a com­mit­tee, chaired by Reese, to eval­u­ate ways to max­i­mize value through alter­na­tive financ­ing, cap­i­tal and tax strate­gies and will make the analy­sis of a REIT con­ver­sion “first pri­or­ity,” the com­pany said.

J.P. Mor­gan Chase & Co. and Mor­gan Stan­ley (MS) are serv­ing as finan­cial advis­ers for Iron Moun­tain, and Weil, Got­shal & Manges LLP and Sul­li­van & Worces­ter LLP are serv­ing as legal advis­ers. Paul, Weiss, Rifkind, Whar­ton & Gar­ri­son LLP is the legal adviser to Elliott.

To con­tact the reporter respon­si­ble for this story: Danielle Kucera at dkucera6@bloomberg.net

To con­tact the edi­tor respon­si­ble for this story: Tom Giles at tgiles5@bloomberg.net

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Iron Mountain Inc Re-appoints Chairman Richard Reese as CEO

Posted on Apr 15, 2011 in Records Management News

UPDATE 3-Reese returns as Iron Moun­tain CEO; top share­holder lauds move
Iron Moun­tain Inc Re-appoints Chair­man Richard Reese as CEO
Thu Apr 14, 2011 4:13pm EDT

Bob Bren­nan steps down as CEO, resigns as direc­tor Davis Advi­sors expects co to exit dig­i­tal business

Shares up 5 pct at 3-yr high (Adds response from largest share­holder; com­pany background)

By Himank Sharma

BANGALORE, April 14 (Reuters) — Iron Moun­tain Inc’s move to bring back its chief exec­u­tive of three decades will likely help the doc­u­ment stor­age com­pany change its loss-making dig­i­tal busi­ness strat­egy, its largest share­holder said.

Tuscon-Arizona based money man­ager Davis Advis­ers, which holds over 21 per­cent of Iron Moun­tain, said the company’s board had con­sulted it before bring­ing back Richard Reese, fol­low­ing share­holder dis­sent over the company’s oper­a­tional spending.

“I’ve met Richard sev­eral times. They have taken a lot of feed­back, and the direc­tors have reached out to our pro­posal,” Ken Charles Fein­berg, co-portfolio man­ager of Davis Advis­ers told Reuters.

Last month, Davis had said it will sup­port hedge fund Elliott Management’s pro­posal to nom­i­nate a slate of four direc­tors to the company’s board. [ID:nL3E7EN31K]

Reese, 65, who has been the chair­man of the board since 1995, replaces Robert Bren­nan, who also resigned as a direc­tor of the company.

Investors cheered the appoint­ment of Reese, who was instru­men­tal in mak­ing Iron Moun­tain a dom­i­nant player in North Amer­i­can phys­i­cal stor­age. Under his lead­er­ship, the com­pany went pub­lic in 1996 and acquired local rivals later.

Iron Moun­tain shares rose 5 per­cent to a three-year high of $34.59 on Thurs­day on the New York Stock Exchange.

Iron Moun­tain began its dig­i­tal records busi­ness at the height of the dot-com boom, hop­ing to get busi­ness from large cor­po­ra­tions look­ing to store their email and instant mes­sage con­ver­sa­tions for future retrievals.

“The foray into dig­i­tal was a fail­ure, they invested $600–700 mil­lion to grow that busi­ness and they were barely earn­ing any money. In order to have a fresh set of eyes, the change was needed to be made,” Fein­berg said.

The com­pany had writ­ten off $283.8 mil­lion as impair­ment charges in fis­cal 2010 for its world­wide dig­i­tal busi­ness due to the sale of the domain name man­age­ment prod­uct line, accord­ing to its lat­est annual filing.

“The board was not hun­dred per­cent pleased with company’s response to the Elliott pro­posal and Reese will be a strong leader,” ana­lyst Edward Atorino at the Bench­mark Co said. (Report­ing by Himank Sharma and Rachana Khan­zode in Ban­ga­lore; Edit­ing by Prem Udayab­hanu, Vyas Mohan)

http://www.reuters.com/article/2011/04/14/ironmountain-idUSL3E7FE20520110414

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