US CORP BOND WRAP-Kraft Heinz adds to pipeline with debt plans

By Natalie Harrison

NEW YORK, June 11 (IFR) - Kraft Heinz Foods joined the list of blue-chip corporates ready to test appetite for a jumbo M&A bond, as it mandated banks on Thursday to hold fixed-income meetings with investors.

The issuer, the product of the planned merger between HJ Heinz and Kraft Foods (Sao Paolo: KFGI34.SA - news) , is considering issuing multi-currency debt by the end of June.

Global coordinators Barclays (LSE: BARC.L - news) and JP Morgan will arrange meetings starting June 19 for a potential euro and sterling denominated deal, while US investor meetings are also planned.

The total debt issuance is expected to be in the region of US$9bn-equivalent, three banking sources with knowledge of the details said.

"There is no official size, but after the merger, Heinz will have about US$9bn of debt outstanding that will need to be refinanced," one banker told IFR.

Goldman Sachs (NYSE: GS-PB - news) and Morgan Stanley (Xetra: 885836 - news) are also involved in the European meetings, while Citi and Wells Fargo (Swiss: WFC.SW - news) are helping to coordinate the US meetings.

The US$46bn merger of cheese giant Kraft and ketchup maker Heinz, backed by Warren Buffett's Berkshire Hathaway (Sao Paolo: BERK34.SA - news) and Brazilian private equity firm 3G Capital (Other OTC: CGHC - news) , was announced in March.

It will create the third-largest North American food company.

Berkshire and 3G are helping to finance the deal with US$10bn of equity.

"(Heinz/Kraft) are targeting all markets, so they have more ability to pick and choose depending where demand is," said the banker.

That approach follows nervousness in the global credit markets after a surge in government bond yields.

On Thursday, 10-year Treasury yields were 10bp lower at 2.4% from extremes of 2.5% overnight.

Most of that rally came after May retail sales data came in line with expectations and slightly cooled expectations of a Fed rate hike.

Syndicate bankers continue to take a cautious approach on new bond issues, however.

Five of the six high-grade issuers looking to price deals today - Morgan Stanley, Rio Tinto Finance USA, Ford Motor (NYSE: F - news) Credit, Caterpillar Financial Services Corp and BNSF Railway Company - are targeting 10-year maturities or shorter after new issue concessions on longer-dated debt spiralled this week.

Devon Energy Corp is looking to sell a 30-year issue.

"A lot of 30-year securities issued recently have sold off in the past two to three weeks, and demand is definitely more mixed at the long end," said a debt capital markets banker.

The six issuers today could raise close to US$8bn, which would push second-quarter volume to US$328.6bn - just US$26.5bn shy of becoming the biggest quarter ever.

FLOWS IN FOCUS

Meanwhile fund flow data are being closely watched, with Lipper due to report its weekly figures later today.

Credit strategists at Bank of America Merrill Lynch said funds saw big inflows this week despite rising yields and rate volatility.

"However, we are inclined towards fading this move," the strategists said.

"75% of US HY inflows were from just 2 funds, while ETFs were actually down on the week. US IG received a staggering $4bn, but weekly inflows here continue to remain overstated due to reporting mismatches."

US high-yield issuance has been relatively slow this week. The deals that have priced seem to have got a relatively warm reception, though.

Sealed Air, priced a dual currency issue on Thursday well inside initial price thoughts. Its EUR400m deal came at par with a coupon of 4.5% versus guidance of 4.75% area. (Reporting by Natalie Harrison; Editing by Shankar Ramakrishnan and Marc Carnegie)