RJR Nabisco Restructures to Cut Debt

NEW YORK —  RJR Nabisco Inc. said today it is beginning a $6.9-billion refinancing that will retire the debt-ladened company’s most troublesome junk bonds and leave it with a more conservative balance sheet.

The food and tobacco giant said $4.45 billion of its high-yield, high-risk junk bonds, issued to help finance its record $24.9-billion leveraged buyout last year, and $2 billion of other costly forms of debt will be replaced with lower-cost bank debt, preferred stock and new equity.

Chairman Louis V. Gerstner Jr. said the program is expected to leave the company with total debt of less than $20 billion and total equity of about $4 billion.

The company estimated its debt-to-equity ratio would drop to 5-to-1 at the completion of the restructuring as compared to 23-to-1 last March.

“This comprehensive recapitalization initiates the second major phase of our rebuilding program for RJR Nabisco,” Gerstner said in a prepared statement.

While the first phase included the divestiture of $5.5 billion in assets and strategic changes to increase cash flow and improve profit margins, Gerstner said the second phase will increase equity in the company by more than $3 billion, significantly reduce high-cost debt and eliminate all remaining temporary bridge loans used to help finance the buyout.