Tyson Said to Plan $3.25 Billion of Debt for Hillshire

Tyson Foods Inc., the largest meat producer in the U.S., is planning to issue $3.25 billion of notes to help fund its purchase of Hillshire Brands Co.

The deal may include five-, 10-, 20-, and 30-year bonds, according to a person with knowledge of the transaction. The $1 billion of five-year securities may yield 100 basis points, or 1 percentage point, more than similar-maturity Treasuries, said the person, who asked not to be named citing lack of authorization to speak publicly.

Tyson will buy all outstanding Hillshire stock for $63 per share, valuing the deal at about $8.55 billion including Hillshire’s debt, the companies said in a July 2 statement. The transaction is planned to close by Sept. 27.

In addition to the bonds, the transaction may be financed with $2.5 billion of senior unsecured term loans, $840 million of Hillshire senior unsecured rollover debt, $949 million of common stock, $1.5 billion of tangible equity units, and $314 million of cash on hand, Moody’s Investors Service said yesterday in a statement.

The bond offering also may consist of $1.25 billion of notes due 2024 that yield 150 basis points more than benchmarks, and $500 million each of 20-year bonds with a 160 basis-point spread and 30-year debentures at 190 basis points, according to the person.

Tyson last offered debt in 2012, when it issued $1 billion of 4.5 percent, 10-year securities that yielded 290 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

Debt Ratio

Moody’s confirmed Tyson’s rating of Baa3, the lowest level of investment grade, in the statement from analysts led by senior credit officer Brian Weddington.

The credit grader, which assigned the proposed bonds the same rating, estimates Tyson’s ratio of debt to earnings before interest, taxes, depreciation and amortization to rise from less than 2.0 times to 3.3 times at the deal’s closing, according to the statement.

Fitch Ratings, which ranked the notes one level higher at BBB, expects the company’s leverage to decline to between 2.0 times and 2.5 times within two years of the transaction closing because of debt reduction and earnings growth, the ratings company said in a July 30 statement.

Hillshire, the maker of Jimmy Dean sausage and Ball Park hot dogs, previously agreed to an acquisition by Pinnacle Foods Inc., then withdrew its support on June 16 after Tyson’s bid. Springdale, Arkansas-based Tyson was saddled with a $163 million termination fee associated with the dissolved Pinnacle deal, according to the statement.

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