Hart raises $4b to pay for Pactiv deal

Graeme Hart. Photo / Martin Sykes.

Reynolds taps bond market as borrowing costs fall to lowest level in three years

Reynolds Group, the packaging manufacturer owned by New Zealand's richest man Graeme Hart, has sold US$3 billion ($3.97 billion) of notes in the second-largest offering of high-yield, high-risk corporate debt this year, according to Bloomberg.

Proceeds will help pay for Reynolds Group's US$6 billion purchase of Pactiv Corp, the maker of Hefty trash bags.

Reynolds Group, the maker of Reynolds Wrap foil, is tapping the corporate bond market as borrowing costs for junk-rated companies fall to their lowest in more than three years.

Sales of the debt to raise money for acquisitions comprise 15 per cent of offerings this year, compared with 5 per cent in 2009, according to data compiled by JPMorgan Chase.

"Given the name, the brands and the fact that it's an existing issuer should make its reception easier," said Sabur Moini, who oversees US$1.7 billion of high-yield debt at Payden & Rygel in Los Angeles.

Reynolds Group sold US$1.5 billion of eight-and-a-half year secured notes that yield 7.125 per cent and a similar amount of unsecured debt of the same maturity that pays 9 per cent, Bloomberg data shows.

In addition to the bond sale, Reynolds Group borrowed US$2 billion in loans to help pay for its acquisition of Pactiv.

The company will also use about US$734 million in equity and cash, it said in a statement.

Pactiv disclosed earlier this week that higher raw material and operating costs would push its third-quarter net income as much as 15 per cent lower than the previous year.

Earnings before interest, taxes, depreciation and amortisation for the quarter would drop to between US$164 million and US$170 million from US$194 million, the company told the Securities and Exchange Commission. The company also said it would incur US$11 million in start-up costs for new production processes and another US$8 million related to the proposed takeover by Reynolds Group.

Moody's Investors Service graded the secured debt Ba3 and the unsecured notes Caa1. Standard & Poor's ranked the secured bonds BB and the unsecured debt B. Credit Suisse Group and HSBC Holdings are managing the sale.

Reynolds Group's offering follows its US$1 billion sale of eight-year notes on April 28 to help pay for its purchase of the Evergreen Packaging group of companies and the Whakatane Mill.

- Bloomberg