By David Bell
NEW YORK, April 2 (IFR) - YUM! Brands re-opened the US high-yield primary bond market in the US with a five-year note on Monday, with the first deal seen in the asset class since March 4.
The fast food company, which operates KFC, Taco Bell, Pizza Hut, and WingStreet chains worldwide, priced a five-year non-call two senior note, rated B1/B+, at 7.75%.
With the book as much as 10 times subscribed the company upsized the deal from an initial US$500m to US$600m with buyers taking a shine to the attractive concession.
Goldman Sachs was left-lead with Wells Fargo, Citigroup, JP Morgan, Bank of America and Morgan Stanley also bookrunners on the deal.
The banks priced the bond at the tight end of 7.75%–8.00% price talk but still offered a decent pick-up to where the firm's 4.75% 2030 bonds had last traded in secondary, at a cash price of 92 to yield 5.83%, according to MarketAxess.
It was a test of remote capabilities for high-yield bankers with the entire syndication and sales teams working from home, according to a banker at one of the leads.
"We think it's the first ever done in high-yield," he said.
BLAZING A TRAIL
YUM! was the first of several borrowers last week that chose to raise debt in the high-yield market to shore up liquidity, even though average spreads have almost doubled since March 4 when the last deal was priced, to 911bp as of Thursday, according to ICE BofA data.
But high-yield issuers are taking the lead from investment-grade names and becoming more willing to pay up for liquidity, given the uncertainty over the economic impact of the pandemic.
"YUM! catalysed the view that putting cash on the balance sheet is a good idea – and even if they have to do it at a level higher than five or six weeks ago, on a weighted average cost of capital basis it is a rounding error," said another banker at one of the leads.
The notes traded up to 104.5 in the secondary after pricing, where they have remained as of Thursday, according to MarketAxess.
YUM! was able to access the market despite the impact that coronavirus is having on its operations.
The company said on March 24 that around 7,000 of its restaurants around the globe were shut, including more than 1,000 Pizza Hut Express units in the US and over 900 KFCs in the UK.
It is expecting a decline in same-store sales in a range of mid-to-high single digits for the quarter ending March 31.
And the company warned that second-quarter sales could be worse hit "due to the increasing number of markets currently impacted".
Moody's changed its outlook on the company's ratings from stable to negative on Monday, saying the company was increasing debt levels at a time of substantial uncertainty over the financial impact of the pandemic.
In an earlier step to boost liquidity, the company drew US$525m on its revolving facility on March 24, taking the total amount drawn on the US$1bn facility to US$950m – a move it described as a "precautionary" measure to preserve financial flexibility.
(This story will appear in the March 4 issue of IFR Magazine.)
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