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BDCs head to Washington to make case to modernize rules

In 2013, Rep. Mick Mulvaney (R-SC) toured the factory of Ajax Rolled Ring and Machine which manufactures steel rings used in construction equipment and power turbines.

The factory, which is located in York, S.C., now employs about 100 people. It has since been acquired by FOMAS Group.

But at the time of Mulvaney’s tour, Ajax was controlled by Prospect Capital, a business development company, or a BDC. Propsect Capital’s investment from April 2008 included a $22 million loan and $11.5 million of subordinated term debt.

Mulvaney said he had never heard of a BDC before that day at Ajax, nor realized how important BDCs were as an investment source in his district.

That has changed. Bringing laws for BDCs up-to-date has since become a key issue for Mulvaney, who is on the House Committee on Financial Services. He has proposed a draft bill to modernize the laws governing BDCs.

As a former small business owner himself, Mulvaney believes allowing BDCs to grow more easily, a key component of his proposed legislation, will provide much-needed financing to the mid-sized companies to which banks have cut lending since the credit crisis.

“BDCs fill a niche for companies too big to access their local banks, but too small to access public debt and equity markets. I am acutely aware of the importance of having capital for growth when you are running a company,” Mulvaney said.

Last week, the modernization of the laws governing BDCs was the subject of a hearing by the House Subcommittee on Capital Markets and Government Sponsored Enterprises. The hearing brought together titans of the BDC industry.

“The BDC industry is maturing, and growing in a meaningful way. They are beginning to realize they need to come together as a regulated industry and speak with a common voice,” said Brett Palmer, President of the Small Business Investor Alliance (SBIA).

“They are incredibly competitive, which is one of the challenges of getting them all in the same regulatory boat, rowing in the same direction.”

The timing of Prospect Capital’s purchase of Ajax Rolled Ring in April 2008 was not fortuitous. The company was heavily reliant on Caterpillar, which accounted for roughly 50% of revenue, and the global financial crisis took a heavy toll on Ajax in 2009 and 2010.

Still, Prospect Capital increased its investment in Ajax during those tough years. That investment allowed Ajax to build a machine shop, and thus deliver a more finished product to its customers. Last year, when Italy-based FOMAS unveiled an offer for Ajax in a bid to expand in the U.S. market, Ajax was a much stronger business with revenue diversified away from Caterpillar, according to Prospect Capital.

Rep. Mulvaney is hoping a bill could be ready at the end of July, and that it could be on the floor for debate by fall. The new draft of the bill addresses concerns raised over a prior proposal to reform BDC rules.

One size does not fit all
The SBIA estimated the number of active BDCs exceeds 80, and the size of the rapidly growing industry has surpassed $70 billion. “What’s a priority for one BDC is not necessarily a priority for another,” SBIA’s Palmer said.

Even with differences across the industry, possibly the most important potential change for BDCs is the asset coverage requirement. The change would effectively raise the leverage limit to a 2:1 debt-to-equity ratio, from the current 1:1 limit.

BDC managers argue that even with the change, leverage of BDCs would be conservative compared to other lenders, which can reach a level of 15:1, for banks, and even higher, to the low-20x, for hedge funds.

“It should allow BDCs to invest in lower-yielding, lower-risk assets that don’t currently fit their economic model,” Ares Capital Board Co-Chairman Michael Arougheti told the hearing. “In fact, the current asset coverage test actually forces BDCs to invest in riskier, higher-yielding securities in order to meet the dividend requirements of their shareholders.”

BDC managers say that BDCs are far more transparent than banks traditionally have been. After all, BDCs regularly publish their loans, as well as the loans’ interest rates and fair values, in quarterly disclosures with the Securities and Exchange Commission.

“We believe it would be good public policy to increase the lending capacity of BDCs, and promote the more heavily regulated, and more transparent, BDC model,” said Mike Gerber, an executive vice president at Franklin Square Capital Partners.

To garner support for the leverage change, the bill may require BDCs to give as much as a year’s notice for any increase, allowing shareholders to sell holdings before any change comes into effect, if they don’t approve.

However, the idea of “increasing leverage” has suffered a tarnished image with the public since the credit bubble and resulting global financial crisis. BDCs are popular with retail investors because of their high dividends.

Testimony of Professor J. Robert Brown, who was a Democratic witness at the June 16 hearing on BDC laws, could help repair this image problem, supporters of the change say. Brown said reducing the asset coverage for senior securities was an “appropriate” move toward giving BDCs more fundraising capacity.

“Such a change will potentially increase the risks associated with a BDC. Nonetheless, this is one area where adequate disclosure to investors appears to be a reasonable method of addressing the concern,” Brown’s published testimony said.

“In addition, the draft legislative proposal provides investors with an opportunity to exit the company before the new limits become applicable.”

Save paper
Another change under discussion is the definition of  “eligible portfolio company,” which dictates what type of companies BDCs can invest in.

BDCs were designed to furnish small developing and financially troubled businesses with capital. Existing rules dictate that BDCs invest at least 70% of total assets into “eligible portfolio companies,” leaving out many financial companies.

Some argue that the economy has changed since this BDC rule was put in place, moving away from traditional manufacturing companies.

“Changing the definition of eligible portfolio company to permit increased investment in financial firms may result in a reduction in the funds available to operating companies. It may also result in an increase in the cost of funds to operating companies,” Brown said in his published testimony.

Less controversial in a potential BDC modernization bill appears to be the desire to ease regulatory burdens for BDCs.

Main Street Capital CEO Vincent Foster drew attention to the SEC filing requirements born by even the smallest BDCs. He called for reform to the offering and registration rules, such as allowing BDCs to use “incorporation by reference” that would allow them to cite previous filings instead of repeating information in a new SEC filing. He said the change would not diminish investor protections.

By way of example, Foster held up a stack of papers at the hearing on the BDC bill, about four inches thick, that was needed by Main Street to issue $1.5 billion in stock. He then held up a stack of papers, less than one inch thick, needed by CIT, not a BDC, to allow for a $50 billion equity issuance.

“Do four more inches of paper protect better than a half an inch? Hundreds of pages represent wasted money and manpower,” Foster said.

“This discussion draft would fix this absurdity and make a host of clearly-needed reforms.” – Abby Latour

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Bankruptcy: Colt Defense settles DIP loan spat, leaving Sciens on outside looking in

colt defenseColt Defense and an ad hoc consortium holding some 61% of the company’s 8.75% senior notes have resolved their battle over interim approval of a DIP facility for the company, helped along by the consortium’s purchase of the roughly $35 million of Colt’s prepetition senior debt held by Marblegate, which had been one of the lenders under the challenged DIP facility.

As a result of that transaction, attorneys told Wilmington, Del., Bankruptcy Court Judge Laurie Silverstein at a hearing late yesterday afternoon, the consortium will replace Marblegate and join with Morgan Stanley as a lender under a new DIP facility for the company.

Silverstein approved the new DIP on an interim basis.

According to court filings, the amount of the DIP will now be in the increased amount of $75 million, but $55 million of that would be used to roll-up prepetition debt, so the amount of new money provided by the DIP to the company would remain at $20 million, the same as the earlier-proposed facility.

As with the prior proposal, the DIP is split into a senior DIP facility and a term DIP facility, with the ad hoc noteholder consortium replacing Marblegate as the lender under the senior portion of the facility, albeit in the larger amount of $41.7 million.

Morgan Stanley will continue to be the lender for the term portion of the DIP, which would also be in an increased amount compared to the initial DIP, namely $33.3 million.

The full amount of the prepetition senior debt now held by the noteholder consortium, about $35 million, would be rolled up by the facility, as would $20 million of the prepetition term debt, with roughly $72.9 million outstanding, that is held by Morgan Stanley.

With respect to the interim approval granted yesterday by the bankruptcy court, the draw on the DIP will be $10 million, and will not include any roll-up amounts, which would only be paid following final approval. A final hearing was scheduled for July 10.

Interest under the senior portion of the facility would be at 11%, payable, at the company’s option, 9% in cash and 2% in kind, while interest under the term portion would be at 12.5% in cash.

The revised DIP does not contain any milestone deadlines with respect to an asset sale process, although it does require the filing of a reorganization plan by Aug. 31, approval of a disclosure statement by Oct. 15, a plan confirmation hearing by Nov. 23, and plan confirmation by Nov. 30.

That said, the company’s attorney, John Rapisardi of O’Melveny & Myers, said that a hearing to approve procedures for a Section 363 sale remains scheduled for July 14, but he acknowledged that the prospects for an asset sale (versus a standalone reorganization) are now a bit murkier.

That’s because the revised DIP financing left the company’s equity sponsor and stalking-horse bidder for the asset sale, Sciens Capital Management, as the odd man out.

Sciens was not, as they say, amused.

As reported, under the stalking-horse deal, Sciens had agreed to assume the company’s prepetition term debt (both the senior and the term loans) and the previously contemplated $20 million DIP facility – a total consideration of about $133 million – in exchange for the company’s assets. The deal would have, in effect, eliminated the company’s unsecured noteholders and left Sciens with ownership of the company’s assets.

Sciens had touted the deal as a backstop to an uncertain and contentious Chapter 11 that could potentially spook and drive away the company’s military customers, and cited its own history of 21 years of ownership of the company and expertise in the arms industry as keys to the company surviving as a going concern.

“The stalking horse bid is gone,” Sciens’ attorney, Mark McDermott of Skadden Arps, said at the hearing, noting that a large portion of the debt Sciens had agreed to assume as a purchase price no longer existed.

McDermott was clearly unhappy about the new DIP, noting several times that it would give noteholders the upper hand in winning ownership of the reorganized company. McDermott said Sciens was prepared to challenge the facility and had “discussed bringing a stop” to the DIP approval process “right now.” In the end, however, McDermott said Sciens would not seek to harm the company’s prospects at this point by launching a battle over the financing, and would respect the decision of the company’s independent directors who, McDermott said, “had no choice” but to back the financing, although he was clear that Sciens was reserving its right to object in the future.

McDermott arguably had little choice but to take that position. After all, he had argued in a court filing of his own yesterday – one defending the initial DIP facility against an alternative and arguably superior DIP proposal from the consortium – that the independent directors designated by the company to oversee the reorganization process were evidence of the fairness of the reorganization and Section 363 asset sale process being pursued by the company.

Still, McDermott told the court ominously, “We are now in a free fall Chapter 11,” adding that the U.S. military, as well as the governments of allied nations – Colt’s key customers – were watching the case.

Rapisardi, however, said he “took exception” to that characterization of the case, a point on which Silverstein agreed.

“Mr. McDermott said the world is watching,” Silverstein said, “We should be careful with our words.”

As reported, the battle over the DIP was, in effect, a proxy war, the first court skirmish in the battle of whether ownership of the reorganized company would fall to the noteholders or to Sciens.

Prior to the hearing on interim approval of the $20 million DIP facility last week, the ad hoc consortium of noteholders, representing about $153.3 million, or 61.34% of the company’s 8.75% senior notes outstanding, asked the bankruptcy court to deny approval of the proposed DIP, saying it was willing to provide the company with a $55 million DIP that is “economically far superior to that proposed by the debtors.”

The company rejected the ad hoc group’s offer.

But faced with potentially better financing, balanced against the company’s immediate need for cash to pay certain bills, including payroll, certain critical vendors, and attorneys’ fees, Silverstein approved the company’s immediate access to $6 million of the DIP and set a more extensive hearing for Monday to hash out the dispute. That hearing was subsequently delayed by two days, until yesterday. – Alan Zimmerman

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StandardAero announces $485M bond offering to back Veritas LBO

StandardAero has announced a $485 million, eight-year (non-call three) offering of senior notes via bookrunners Jefferies (B&D), KKR, and MCS Capital Markets. A roadshow will run through June 29, for pricing thereafter.

Proceeds will finance the purchase of StandardAero by Veritas Capital from Dubai Aerospace Enterprise.

Ratings are CCC/Caa2, according to the banks, and the bonds do not come with registration rights.

Founded in 1911, StandardAero is an independent provider of aircraft engine MRO services. It provides a global service network of 13 primary facilities in the U.S., Canada, Europe, Singapore, and Australia. – Luke Millar

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AerCap, Ball Corp. add $1.8B in high-yield bonds to upcoming calendar

Two high-yield deals were announced this morning for a total of $1.8 billion. See the LCD High-Yield Forward Calendar for updated details. A cheat sheet follows:

—–Today:

(NEW) AerCap BB+(e)/Ba2(e) $800M 5YNCL/7YNCL senior for capex/repay debt via CS/DB/GS//Barc/BAML/Citi/CA/JPM/Miz/MS/RBC/UBS/WFS

(NEW) Ball Corp. BB+(e)/Ba1(e) $1B 10YNCL senior to repay debt/GCP via BAML/DB/GS/Key/Miz/Rabo

—–This week:

Endo Pharmaceuticals B/B1 $1.435B 8YNC3 senior for M&A via Barc/DB/CS/Citi

Univar USA B(5)/Caa1 $400M 8YNC3 senior to repay debt BAML+

My Alarm Center B-/B3 $265M 5YNC2 secured to repay debt/GCP via Imperial

Georgia Renewable Power TBA/TBA $225M 7YNC3 first-lien for capex via Seaport

TI Automotive B(e)/Caa1(e) $550M 8YNC3 senior for M&A via Citi/JPM/Barc/Miz/GS/Nomura/RBC/UBS

Ashland BB/TBD $1.1B senior to redeem notes via TBD

 

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Ball Corp. to issue $1B of 10-year bonds to repay debt

Ball Corp. has announced a $1 billion offering of 10-year senior bullet notes via Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, KeyBanc, Mizuho, and Rabo as joint bookrunners, according to sources.

The notes are SEC-registered, and pricing is expected today. Proceeds will be used to repay borrowings under the company’s revolving credit facility. The balance, if any, may be used for general corporate purposes, according to filings.

Existing senior ratings are BB+/Ba1. That’s the profile of the company’s last tap of the market in May 2013. The company at that time priced $1 billion of 4% notes due 2023, and the issue traded Friday at 95 to yield 4.728%, trade data show.

Ball Corp. in February disclosed it had obtained a £3.3 billion bridge loan and a $3 billion multicurrency revolver in connection with the company’s planned acquisition of Rexam. Ball and Rexam agreed to merge in a cash-and-stock transaction valued at £5.4 billion ($8.4 billion), including the assumption of net debt, according to the firm.

Broomfield, Colo.-based Ball Corp. supplies metal packaging products to the beverage, food, personal care, and household products industries worldwide. It trades on the NYSE under the symbol BLL. – Joy Ferguson

 

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Energy sector, Colt Defense focus of LCD’s Restructuring Watchlist

The beleaguered energy sector dominated activity this quarter on LCD’s Restructuring Watchlist, with Sabine Oil & Gas missing an interest payment on a bond and Hercules Offshore striking a deal with bondholders for a prepackaged bankruptcy.

Another high-profile bankruptcy this month was the Chapter 11 filing of gunmaker Colt Defense. Colt’s sponsor, Sciens Capital Management, agreed to act as a stalking-horse bidder in a proposed Section 363 asset sale. The bid comprises Sciens’ assumption of a $72.9 million term loan, a $35 million senior secured loan, and a $20 million DIP, and other liabilities.

The missed bond interest payment for Sabine Oil & Gas was due to holders of $578 million left outstanding of Forest Oil 7.25% notes due 2019, assumed through a merger of the two companies late last year.

The skipped payment comes after a host of other problems. Sabine Oil has already been determined to have committed a “failure to pay” event by the International Swaps and Derivatives Association, and will head to a credit-default-swap auction. The determination by ISDA is related to previously skipped interest on a $700 million second-lien term loan due 2018 (L+750, 1.25% LIBOR floor).

Meantime, Hercules Offshore on June 17 announced it entered a restructuring agreement with a steering group of bondholders over a Chapter 11 reorganization. The agreement was with holders of roughly 67% of its10.25% notes due 2019; the 8.75% notes due 2021; the 7.5% notes due 2021; and the 6.75% notes due 2022, which total $1.2 billion.

Among other developments for energy companies, Saratoga Resources filed for Chapter 11 for a second time, blaming challenges in field operations, the decline in oil and gas prices, and an unexpected arbitration award against the company. Thus, Saratoga Resources has been removed from the list. Another company previously on the Watchlist, American Eagle Energy, has been removed following a Chapter 11 filing in May.

Another energy company, American Energy-Woodford, could work itself off the Watchlist through a refinancing. On June 8, the company said 96% of holders of a $350 million issue of 9% notes due 2022, the company’s sole bond issue, have accepted an offer to swap into new PIK notes.

Also, eyes are on Walter Energy. The company opted to use a 30-day grace period under 9.875% notes due 2020 for an interest payment due on June 15.

Another energy company removed from the Watchlist was Connacher Oil and Gas. The Canadian oil sands company completed a restructuring in May under which bondholders received equity. The restructuring included an exchange of C$1 billion of debt for common shares, including interest. A first-lien term loan agreement from May 2014 was amended to allow for loans of $24.8 million to replace an existing revolver. A first-lien L+600 (1% floor) term loan, dating from May 2014, was left in place. Credit Suisse is administrative agent.

Away from the energy sector, troubles deepened for rare-earths miner Molycorp. The company skipped a $32.5 million interest payment owed to bondholders on a $650 million issue of first-lien notes. Restructuring negotiations are ongoing as the company uses a 30-day grace period to potentially make the payment.

In other news, Standard & Poor’s downgraded the Tunica-Biloxi Gaming Authority to D, from CCC, following a skipped interest payment on $150 million of 9% notes due 2015. Roughly $7 million was due to bondholders on May 15, and the notes were also cut to D, from CCC with a negative outlook. The company operates the Paragon Casino in Louisiana.

Constituents occasionally escape the Watchlist due to improving operational trends. Bonds backing J. C. Penney advanced in May after the retailer reported better-than-expected quarterly earnings and improved sales.

In another positive development, debt backing play and music franchise Gymboree advanced after the retailer reported steady first-quarter sales and earnings that beat forecasts. Similarly, debt backing Rue 21 gained in May after the teen-fashion retailer privately reported financial results, according to sources. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

Here is the full Watchlist, which is updated weekly by LCD (Watchlist is compiled by Matthew Fuller):

Watchlist 2Q June 2015

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High yield funds see another huge investor cash outflow: $2.9B

Investors pulled a whopping $2.9 billion out of U.S. high-yield funds for the week ended June 17, according to Lipper. It is the largest redemption from the asset class in six weeks and it builds on a $2.6 billion outflow last week.

HY outflows continue June 2015

The big outflow was a bit more modest on the exchange-traded-fund front, at 51% of the sum, or $1.5 billion this past week, after 68% of the outflow, or $1.8 billion, last week. This is a return to the heavy-handedness of ETFs in recent months, in contrast to an inflow two weeks ago, which was just 5% ETF-related.

Regardless of what that suggests about fast money, hedging, and market timing, it’s a second-consecutive large outflow, and it drags the trailing-four-week average deeper into the red, at negative $1.2 billion per week from negative $291 million last week and positive $327 million two weeks ago.

The big outflow drags down the full-year reading to inflows of $3.6 billion, with an inverse 10% ETF-related, or inflows of $3.9 billion to mutual funds dented by $352 million of ETF redemption. Last year, after 24 weeks, there was a net $5.9 billion inflow, with 14% related to ETFs.

The change due to market conditions this past week was also in the red, but just negative $440 million. That’s essentially nothing against total assets, which were $201.5 billion at the end of the observation period. ETFs account for $36.9 billion of total assets, or roughly 18% of the sum. – Matt Fuller

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CORE Entertainment, owner of rights to American Idol, misses loan interest payment

CORE Entertainment, owner of rights to the American Idol television series, has missed an interest payment on a $160 million loan. The company now enters a 30-day grace period to make the payment.

As a result of the missed interest payment, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C from CCC-, and placed the rating on CreditWatch negative.

Other ratings were also cut. Standard & Poor’s lowered the company’s corporate rating to CCC- from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC- from CCC+.

The company’s cash totaled $81 million as of March 31, 2015, Standard & Poor’s said.

“We believe that CORE Entertainment has entered the grace period to preserve liquidity, given its cash flow deficits and ongoing investment needs,” Standard & Poor’s analyst Naveen Sarma said in a June 17 research note. “We plan to resolve the CreditWatch placement within 30 days. We could lower the ratings if we believe that CORE Entertainment will not make the interest payment or if the company defaults.”

The recovery rating on the second-lien loan is the lowest possible, at 6, indicating an expected negligible recovery (0-10%) in the case of a default. The recovery rating on the first-lien loan is 4, indicating an expected recovery of 30-50%, which is considered average on the Standard & Poor’s scale.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise, and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

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Ares forms new middle-market lending venture with AIG-backed Varagon

Ares Capital Corporation has named Varagon Capital Partners, which is backed by insurer AIG, as its new partner for middle-market lending.

The new joint venture, called the SDLP (Senior Secured Loan Program), will originate and hold first-lien loans, including stretch senior and unitranche loans, of up to $300 million, a joint Ares-Varagon statement today said.

“The SDLP will work to follow on with the success that Ares Capital enjoyed with its previous senior loan joint venture, the Senior Secured Loan Program (SSLP), with GE Capital… The program will provide sponsors and management teams with continued access to flexible capital with speed and certainty and without syndication requirements,” the statement said.

“As a long-term investor, AIG is attracted to the strong investment fundamentals of middle-market credit,” said Brian Schreiber, AIG’s Chief Strategy Officer, in the statement.

The fate of Ares Capital’s venture with its former partner, GE Capital, had been in question. The two companies cooperated on the $9.6 billion SSLP venture, with Ares supplying 20% of funding, and GE 80%. Financial details of the new venture were not given.

General Electric announced this month it would sell Antares Capital to Canada Pension Plan Investment Board (CPPIB) and focus on its core industrial businesses. GE Antares specializes in middle-market lending to private-equity backed transactions, but it was unclear if Ares and CPPIB would work together longer term.

Ares has been working with potential parties on a new venture, including non-U.S. regulated banks and non-banks such as asset managers, insurance companies, and combinations thereof. However, there is no guarantee Ares will reach a deal.

Varagon, a direct lending platform to middle-market companies, was formed in 2013. It is backed by AIG and affiliates of Oak Hill Capital Management.

Ares Capital is a BDC that trades on the Nasdaq under the symbol ARCC and invests in debt and equity of private middle-market companies. A subsidiary of Ares Management, which trades on the New York Stock Exchange as ARES, manages Ares Capital.

LCD defines middle-market lending as lending to companies that generate annual EBITDA of $50 million or less, or involving deals of $350 million or less in size, although definitions vary among lenders. – Abby Latour

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S&P ratings emerge on $16.1B of debt for Heinz, Kraft tie-up

More details have emerged regarding the debt financing backing H.J. Heinz’s merger with Kraft Foods Group, via an S&P Ratings report.

Heinz’s proposed $15.6 billion debt financing will include $11 billion of senior unsecured notes denominated in U.S. dollars, euros, and pounds; a $4 billion senior unsecured revolver due 2020; and a $600 million term loan due 2022, according to the report. Kraft Canada’s proposed debt, meanwhile, will include C$500 million of senior unsecured fixed-rate notes due 2020.

S&P yesterday afternoon assigned an issue rating of BBB- to Heinz and Kraft Canada’s proposed debt and said it expects to assign a BBB- corporate credit rating to the combined Kraft Heinz Co. following the close of the transaction. Heinz’s existing BB- corporate rating, though, remains on CreditWatch, with positive implications. Kraft’s BBB corporate credit rating also remains on CreditWatch, with negative implications.

Long-dated bonds backing Kraft Foods Group (Nasdaq: KRFT) – which are expected to garner low triple-B consolidated ratings for The Kraft Heinz Co. after the resolution of ratings reviews, versus KRFT’s current BBB/Baa2 profile – traded today wider net of June. KRFT 5% bonds due June 2042, which date to issuance in May 2012 at T+230, traded today at date-adjusted levels near T+220, or 15-20 bps wider since trades early this month, and 40 bps wider over the last two months, trade data show.

Proceeds from the proposed debt financing will be used to refinance Heinz’s $6.4 billion B institutional term loan due 2020, redeem $3.1 billion of Heinz’s 4.25% second-lien senior secured notes due 2020 and $800 million of its 4.875% second-lien senior secured notes due 2025, and redeem Kraft’s recent $1.4 billion June 2015 maturities that were repaid with its revolver.

Heinz’s institutional term loan and 4.25% notes date back to the $28 billion LBO of Heinz by 3G Capital and Berkshire Hathaway in 2013.

Consideration to Kraft shareholders, which will hold a 49% stake in the combined company versus 51% to Heinz shareholders, includes stock in the combined company and a $16.50-per-share special dividend amounting to roughly $10 billion, or 27% of Kraft’s closing price yesterday. The dividend will be funded by an equity contribution by Berkshire Hathaway and 3G Capital. –Richard Kellerhals/John Atkins