Corporate Financing Analysis - HJ Heinz Kick-starts Declining 2015 High Yield Corporate Bond Activity - 09 FEB 2015


The global high yield bond market may have struggled to gain any real momentum so far this year, but the sight of a large company with a strong track record coming to market early on in the year certainly adds credence to our view that the junk bond sector will outperform the investment grade bond market in 2015. Indeed, last week's USD2.0bn 10-year bond offering from HJ Heinz represents the largest junk bond deal globally of the y-t-d and brings 2015 issuance to a level of USD20.1bn. This represents a 46% y-o-y decline in activity compared to a year earlier, however, and the slowest annual start for high yield bonds in six years. The deal, which was assigned a B1 rating from Moody's Investors Service, also marked the firm's first tapping into corporate bond markets in almost two years. The last time it tapped bond market investors back in March 2013, the firm was taken private by Warren Buffet's Berkshire Hathaway and Brazilian private equity firm 3G Capital in a USD27.4bn leveraged buyout deal.

BMI notes that the most recent deal saw Barclays, which led the HJ Heinz offering along with Wall Street giants J.P. Morgan and Wells Fargo, climb to the top of the global high yield debt underwriting rankings in 2015 to-date - with a 14.1% market share. According to Dealogic, the UK-based lender held a 4.7% market share by the same stage last year. The USD2.0bn proceeds raised from the deal will go towards repaying a portion of a USD8.4bn outstanding senior unsecured facility, consisting of Term B-1 term loans totalling USD2.8bn maturing 2019, and Term B-2 term loans totalling USD5.6bn maturing 2020. Moody's expects that total debt outstanding after the note issuance will therefore be unchanged at approximately USD13.6bn. More broadly speaking, we believe that with interest rates in the US still near historic lows, the window still remains wide open for firms to come to market and issue bonds. BMI points to raising funds for strategic deals or for restructuring outstanding debt facilities as the key motivations for boardrooms tapping bond market investors.

A Few Idle Thumbs
January Global High Yield Debt Issuance, 2005-2015