By Stephen Carter and Caleb Frazier
March 22 (IFR) - H.J. Heinz moved to lock up financing
Friday for the biggest buyout in food industry history, slashing
the cost of the loan and bond deals funding its $28bn
acquisition by 3G Capital and Warren Buffett's Berkshire
Investors and other market sources reported massive demand
in the market, allowing the iconic ketchup maker to potentially
save hundreds of millions of dollars in financing one of the
most high-profile leveraged buyouts (LBOs) in recent years.
Heinz unexpectedly tweaked its funding plan at the
last minute on Thursday, dropping the euro and sterling pieces
of the term loan package due to huge interest from US investors
- and disappointing Europeans keen to get in on the trade.
Instead the company on Friday increased the size of both its
new high-yield bond, to $3.1 billion from $2.1 billion, and its
dollar-denominated term loans package to $9.5 billion from $8.5
Demand has been so high that price guidance on the TLB-1 and
TLB-2 term loan pieces was reduced by 50-75 basis points (bp)
and 25-50bp respectively on Friday. The B1/BB- rated bonds
priced at 4.25% in from initial whispers in the market of 5.75%.
"I really don't believe there have been signs of
excessiveness in the market, but maybe this is the first sign,"
James Lee, a senior analyst at Calvert Investments, told IFR.
"When people feel comfortable with an established company,
they are willing to lend at very, very low rates."
Berkshire Hathaway and Brazilian private equity
firm 3G Capital, the majority owner of Burger King, are buying
Heinz for $72.50 a share, using equity along with the loans and
bond to finance the acquisition.
Announced in February, the deal surprised many in the
market, not least because that per-share offer price was 19
percent higher than Heinz's all-time peak stock price.
And the additional leverage being used to fund the buyout
led Heinz to be immediately downgraded from investment-grade to
Fitch, the first rating agency to move Heinz down, put them
down further to BB- last week.
But Buffett's stature, 3G's food industry track record in
the Burger King takeover, and Heinz's global reach have combined
to appeal to investors at a time when M&A activity has generally
been exceptionally slow.
Order books for the new Heinz bond - a 7.5-year non-call two
issue - were heard Thursday night to be more than $10 billion.
Lee called Buffett's commitment to the buyout "a seal of
Wells Fargo, JP Morgan, Barclays and Citigroup are joint
bookrunners on the bond issue.
Wells Fargo and JP Morgan are also joint books on the term
loans, guidance on which is now Libor+225bp and Libor+250bp,
with a 1 percent Libor floor on each.
Final pricing could change even after lender commitments are
A number of other banks are sub-underwriting the loans,
including Banco do Brasil, Barclays, Citigroup, HSBC, Itau
Unibanco, RBC and UBS.