H.J. Heinz Co. (HNZ), the ketchup maker being acquired by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and 3G Capital Inc., canceled plans to distribute $2 billion of the $12 billion in loans backing the purchase in euros and pounds, according to a person with knowledge of the transaction.
Heinz may fund the portion with bonds or loans denominated in dollars, said the person, who asked not to be identified because the information is private.
Debt financing for the $23 billion deal is being arranged by JPMorgan Chase & Co., Wells Fargo & Co., Barclays Plc and Citigroup Inc., and includes an $8.5 billion term loan, according to data compiled by Bloomberg. Scrapping the European portion comes as demand for speculative-grade loans in the U.S. is at record levels. Investors have poured $12.4 billion into funds that target U.S. floating-rate debt this year, compared with $12.2 billion for all of 2012, according to JPMorgan.
“There is not enough loan supply to satisfy demand,” JPMorgan analysts led by Peter Acciavatti wrote in a March 15 report. Subtracting about $170 billion of loans that were sold for refinancings and debt paydowns, only $5 billion of new money loans have been sold this year, according to the report.
Leveraged loan prices rose 0.04 cent yesterday to 98.19 cents on the dollar, the highest since July 22, 2007, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.
Michael Mullen, a spokesman for Pittsburgh-based Heinz, declined to comment.
The $8.5 billion term loan, which will be split into a six- year B-1 portion and a seven-year B-2 slice, will pay interest at 2.75 percentage points or 3 percentage points more than the London interbank offered rate with a 1 percent minimum on the lending benchmark, Bloomberg data show. Heinz may sell the debt at 99.5 cents on the dollar.
The lending agreement also includes a $1.5 billion revolving line of credit, Heinz said in a Feb. 15 regulatory filing.
The company is selling $2.1 billion 7.5-year second-lien senior notes through Hawk Acquisition Sub Inc., according to another person with knowledge of the offering who asked not to be identified because the terms aren’t set.
In a revolving line of credit, money can be borrowed again once it’s repaid; in a term loan it can’t.
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