Heinz Cut to Junk by Fitch as Buffett-3G Buyout Adds to Debt
HJ Heinz Co. was cut three levels to junk by Fitch Ratings after agreeing to be acquired by Warren Buffett’s Berkshire Hathaway Inc. and 3G Capital in a $23 billion deal that will add to the ketchup-maker’s debt.
The credit grade was cut to BB+ from BBB+ because “Heinz’s leverage could increase,” the ratings firm said today in a report on the Pittsburgh-based company. “Fitch views this substantially higher level of financial risk as not being commensurate with an investment-grade rating.”
Berkshire and Jorge Paulo Lemann’s 3G will each pay about $4.1 billion for an equity stake, with Buffett’s firm contributing an additional $8 billion for preferred shares. Heinz said today it obtained $14.1 billion in financing from JPMorgan Chase & Co. and Wells Fargo & Co. to support the deal, including a revolving line of credit and bridge facilities.
Fitch said it could downgrade the condiment maker again after reviewing financing terms and the firm’s capital structure once a deal is completed.
Tom Russo, a partner at Berkshire shareholder Gardner Russo & Gardner, said yesterday that Heinz will have the resources to meet its obligations as it benefits from interest rates near record lows.
“It will not be hard to service the debt because the debt will be at such low rates,” Russo said. “The cash that’s left over can go to Berkshire for reinvestment elsewhere.”
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