Bertelsmann putting stock in bonds

Move will reduce conglom's more expensive bank loans

Private German conglom Bertelsmann is the latest media company to tap the bargain bond market in search of better interest rates.

Bertelsmann on Monday launched a E500 million ($584 million) seven-year Eurobond to reduce its more expensive bank loans and diversify its capital base. Citigroup, Deutsche Bank, Dresdner Kleinwort Wasserstein and JPMorgan are behind the fund raising.

Plans to issue the bond were announced in June 2002, but the company postponed the transaction pending an improvement in the capital markets.

Launch follows a $500 million private placement in the U.S. last month. Analysts say the bond is a way to better acquaint public investors with the conglom, which has toyed with the idea of an initial public offering in the next three years.

Ratings agency Standard & Poors assigned a BBB+ senior unsecured debt rating to the proposed bond. “The ratings on Bertelsmann, one of the world’s largest media groups, reflect its well-diversified and globally spread content franchises, backed by its strength in distribution, printing and media and business services,” said S&P analyst Trevor Pritchard.

Still, S&P noted that lower operating profit margins than at its vertically integrated peers (such as Viacom), the costs of recent restructuring and “challenges in key markets such as recorded music and book clubs” provided room for caution.

Bertelsmann sales are divided evenly among the U.S., Germany and elsewhere in Europe.

(Christian Kohl in Cologne contributed to this report.)

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