Investors with sweet tooth devour Hershey's US$1bn bond

NEW YORK, Nov 1 (IFR) - Investors proved to have as big a sweet tooth as eager trick-or-treaters as they indulged in a US$1bn three-part bond from confectionery company Hershey last Monday.

The Reese's Peanut Butter Cup maker saw order books swell to over US$6bn on its first bond of the year as investors bought into one of the few high credit quality names in the food and beverage sector.

Hershey, rated A1/A, came with a US$300m five-year, a US$300m 10-year and a US$400m 30-year that priced at Treasuries plus 40bp, 60bp and 80bp, respectively.

Bookrunners Bank of America, Citigroup, JP Morgan and Royal Bank of Canada tightened spreads by as much as 25bp through price progression thanks to an order book that hit US$6.2bn.

Investors were eager to back a Single A credit in the food and beverage space, where companies such as Kraft Heinz and Campbell's are struggling to maintain high-grade ratings and are viewed as some of the more risky credits in the asset class.

Even so, Hershey has not been immune from the trends of healthier eating that has spurred a slew of acquisitions in the sector.

And proceeds from this bond are expected to help fund a US$397m purchase in August of ONE Brands, a company that makes high-protein nutrition bars.

Over the past two years, the company has spent more than US$2bn in acquisitions, including a US$1.6bn purchase of SkinnyPop popcorn maker Amplify Snack Brands in December 2018.

In January, Hershey agreed to a US$1.5bn 364-day credit agreement through BofA and RBC to fund the acquisition of Amplify, according to LPC.

Recent M&A activity is expected to help broaden what has been a narrow product mix - a process that is nearing an end and should put Hershey on a path toward deleveraging thanks to strong cashflows, say analysts.

S&P, which revised its outlook for the company to stable from negative this month, said leverage could jump to the low 2x due to acquisitions, but long term it sees it staying at 2x or below.

"We expect management will prioritise debt reduction over share repurchases and restore leverage closer to around 2x by the end of fiscal 2019," S&P said in a report.

"We expect Hershey to continue to generate healthy cashflows and maintain at least US$1bn in free operating cashflow."

(This story will appear in the November 2 issue of IFR Magazine.)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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