(Bloomberg) — Mars Inc. sold $26 billion of US high-grade bonds on Wednesday to help fund its acquisition of rival foodmaker Kellanova, in the biggest US corporate bond sale of the year.
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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 US 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.
Part of the appeal was the company’s strong operating results, according to Scott Kimball, chief investment officer at Loop Capital Asset Management. Mars last year generated about $11.2 billion of a key measure of income known as adjusted earnings before interest, taxes, depreciation and amortization last year, with Kellanova bringing about about 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, Loop’s 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 and 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.
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