MARS sold US$26 billion of US high-grade bonds on Wednesday (Mar 5) to help fund its acquisition of rival foodmaker Kellanova, in the biggest US corporate bond sale of the year.
The candy maker saw strong demand for the bonds with investors placing orders for around US$114.4 billion worth of notes, the biggest final order book on record for the US corporate market, according to sources with knowledge of the transactions.
The final orders for bonds represented about 4.4 times the notes actually for sale, while the average ratio for the year is closer to three times, according to data compiled by Bloomberg.
Part of the appeal was the company’s strong operating results, according to Scott Kimball, chief investment officer at Loop Capital Asset Management. Mars last year generated about US$11.2 billion of a key measure of income known as adjusted earnings before interest, taxes, depreciation and amortisation last year, with Kellanova bringing about another US$2.25 billion.
The income for the combined companies is high enough relative to debt obligations to earn credit ratings of A by S&P Global Ratings and an equivalent A2 by Moody’s Ratings, the sixth highest level. And the offering is big enough to probably generate a fair amount of trading volume, Loop’s Kimball said. The bonds are already being quoted in the so-called grey market at yields a few hundredths of a percentage point lower than where the securities priced, according to sources with knowledge of the matter.
“It’s a high-quality name,” Kimball said.
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The longest-term portion of the deal, a 40-year note, was priced to yield 1.27 percentage points more than Treasuries. The initial price talk was around 1.55 percentage points.
A group of banks – Bank of America (BOA), BNP Paribas, Citigroup, JPMorgan Chase, Morgan Stanley and Rabo Securities – held calls on Tuesday to sound out investors on the deal. BOA, BNP, Citi and JPMorgan and Morgan Stanley declined to comment on Wednesday. Mars and Rabo did not respond to a request for comment.
The candy maker said on Tuesday it was seeking permission from holders of about US$5 billion of Kellanova US dollar and euro notes to change lending agreements on the debt to be more consistent with that of Mars. Also, Mars will provide a guarantee on those Kellanova notes once the acquisition is completed.
Wednesday’s offering contained clauses that allow Mars to buy back the bonds if the acquisition does not close by Aug 20, 2026, or if the purchase is terminated before then. That provision, known as a special mandatory redemption, allows the company to repurchase the notes at 101 cents on the US dollar.
Candymaker diversifies
Mars agreed in August to buy Kellanova for nearly US$36 billion including debt, combining two major snack makers in an industry that’s been facing slowing growth. Buying Kellanova will bring brands including Pringles potato crisps and Cheez-It cheese crackers to Mars, further diversifying it from chocolate products amid surging prices for cocoa.
Mars obtained a US$29 billion short-term loan, known as a bridge loan, to help pay for the purchase. It then borrowed the equivalent of US$1 billion through privately placed bonds in December to start repaying that financing, Bloomberg reported.
The company will also use a US$4 billion delayed-draw term loan to help repay the bridge loan, according to documents seen by Bloomberg. The debt the company is taking on to fund the acquisition resulted in its seeing its credit ratings cut by one level by both S&P Global Ratings and Moody’s Ratings.
There is only one other company that sold high-grade bonds in the US on Wednesday. Earlier, four companies were expected to issue US investment-grade bonds on Wednesday, according to an informal survey of debt underwriters. BLOOMBERG
