Mars Inc, one of the world’s largest candy companies, attracted strong investor demand on Tuesday for its debut dollar bond to raise US$5bn. Price progression for the deal (rated A1/A) was slow as investors tried to learn more about the private company’s finances, but the offering still managed to garner books of US$28bn across eight tranches.
“They don’t disclose public financials unless you’re a stakeholder so that’s been a challenge trying to get a grasp on the fundamentals, but it’s a decent business and a high quality credit,” said Steve Boothe, portfolio manager in T. Rowe Price Group’s fixed income division.
Investors may not be familiar with the debut issuer, but a 5bp-10bp new issue concession compared to peer PepsiCo’s outstanding 10-year notes and the strength of its confectionary brands such as M&M’s, Snickers, Milky Way and Skittles helped bring in spreads by 23bp-18bp by launch on maturities from six to 40 years.
The company received its Single A ratings after the deal was mandated on Monday with Moody’s noting US$37bn of sales across a diversified portfolio that includes confectionary, pet food, pet health care and packaged foods.
It has found some success in trending health food categories with its Kind brand, but sweets have remained popular with consumers.
“Confectionery companies you might think are out of vogue because everyone is so interested in health, but in a way, Hershey, Mars, Wrigley and Nestle still perform very well in that indulgent category,” Linda Montag senior vice president of Moody’s corporate finance group, told IFR.
“Consumers, despite their desire to eat healthier, still like their candy bars and chewing gum.”
DIVERSIFY AND GROW
Mars has pursued acquisitions to stimulate growth through its US$23bn purchase of Wrigley back in 2008 and more recently its US$9bn purchase of VCA in 2017 in order to diversify the business and propel it into the pet care industry, which now makes up more than half its sales.
Moody’s expects Mars to target two times net debt to Ebitda over time. Although leverage will be elevated after the transaction goes through, the company is expected to reduce leverage down to three times by year-end.
“Strong cashflow will be applied to debt reduction for fast deleveraging post the transaction,” Mars Chief Financial Officer Claus Aagaard said on the investor call.
“We have a strong track record of deleveraging when we have made big acquisitions and we will always have strong discipline around acquisitions during the deleveraging phase and making sure we do the right things.”
The debt will be used to push out upcoming private placement maturities and outstanding debt from previous acquisitions, such that it won’t exceed the company’s US$3bn in yearly free cashflow, according to an investor presentation.
“It’s a very strong free cashflow company,” Montag said. “This company is more interested in investing in growth and doesn’t have a lot of demand from its private owners to be increasing the dividend significantly, which is why their free cashflow is so good.”
Bank of America Merrill Lynch, Citigroup and JP Morgan are lead bookrunners and BNP Paribas, Lloyds, Mizuho, Morgan Stanley, Rabobank and SMFG are co-managers.
