Boutique investment bank Greenhill & Co. has announced plans for a leveraged recapitalization and major share repurchase.
The bank, which has been public for 13 years, said late Monday, Sept. 25 that it would borrow a five-year, institutional term loan of $300 million from Goldman Sachs to finance the recapitalization, intended to “increase tax efficiency, reduce cost of capital, increase employee alignment with shareholders, and enhance long term shareholder value,” according to a regulatory filing by the firm.
Greenhill will offer to repurchase 9 million shares, or roughly 30 percent of its outstanding stock, for $17 apiece. While a leveraged recapitalization and share repurchase of this magnitude could signal a step toward privatization, CEO Scott Bok said that the firm has no plans to go private at the moment.
“We are staying in the public equity markets,” he said by phone. “We like the public markets and we plan to stay here right now.”
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Although Bok may like the public markets, his firm has struggled. Prior to announcing the recapitalization, Greenhill had lost more than 50 percent of its stock’s value since mid-March. Monday’s news, however, gave the bank a boost, with shares up 16 percent for the day as of 1 p.m. Tuesday.
“The credit markets are strong,” Bok continued. “The equity market is valuing us at a good price.”
Greenhill said it expects that the $300 million loan will, together with equity sale proceeds, be able to repay all of its existing bank debt and help to repurchase up to $235 million of shares. Additionally, the firm’s chairman and CEO will each purchase $10 million in newly issued common stock.
Furthermore, Greenhill plans to reduce or eliminate its quarterly dividend to “improve tax efficiency and accelerate the future repayment of debt,” according to its Securities and Exchange Commission filing. Greenhill has previously paid out more than $630 million in dividends and spent a further $630 million in share repurchases, according to the filing.
Management and key employees will not sell their shares, “substantially” increasing their economic ownership of the firm. Additionally, Bok will forego 90 percent of his base salary effective January 2018 in exchange for $2.75 million in restricted stock.
“It’s an exciting one-time opportunity to increase inside ownership,” Bok said.
