Twix and Mars chocolate bars on shelves in a shop in Chelmsford, UK. Photographer: Chris Ratcliffe/Bloomberg.
Mars Inc. sold $26 billion of U.S. high-grade bonds on Wednesday to help fund its acquisition of rival foodmaker Kellanova, in the biggest U.S. corporate bond sale of the year so far.
The candy maker saw strong demand for the bonds, with investors placing orders for around $114.4 billion worth of notes, the biggest final order book on record for the U.S. corporate market, according to people 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 3 times, according to data compiled by Bloomberg.
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Part of the appeal was the company’s strong operating results, according to Scott Kimball, chief investment officer at Loop Capital Asset Management. Last year, Mars generated about $11.2 billion in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), with Kellanova bringing around another $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, Kimball said. The bonds are already being quoted in the so-called “gray market” at yields a few hundredths of a percentage point lower than where the securities priced, according to people with knowledge of the matter.
“It’s a high-quality name,” Kimball said.
The longest-term portion of the deal, a 40-year note, was priced to yield 1.27 percentage point more than Treasuries. Initial price talk was around 1.55 percentage point.
A group of banks—Bank of America Corp., BNP Paribas, Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, and Rabo Securities—held calls Tuesday to sound out investors on the deal. BofA, BNP, Citi, JPMorgan, and Morgan Stanley declined to comment on Wednesday. Mars and Rabo didn’t respond to a request for comment.
The candy maker said on Tuesday it was seeking permission from holders of about $5 billion of Kellanova 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 doesn’t close by August 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 dollar.
Mars agreed in August to buy Kellanova for nearly $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 $29 billion short-term bridge loan to help pay for the purchase. It then borrowed the equivalent of $1 billion through privately placed bonds in December to start repaying that financing, Bloomberg reported.
The company will also use a $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 credit ratings being cut by one level by both S&P Global Ratings and Moody’s Ratings.
Only one other company sold high-grade bonds in the U.S. on Wednesday. Earlier, four companies were expected to issue U.S. investment-grade bonds Wednesday, according to an informal survey of debt underwriters.
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