Novolex preps buyout financing
Novolex is lining up more than US$5bn of bond and loan funding over the coming week as the Apollo-backed packaging company seeks to fund its acquisition of rival Pactiv Evergreen.
The borrower is marketing US$1.415bn of seven-year non-call three senior secured notes through left lead UBS, providing junk bond investors with a rare opportunity to buy into a new money trade in market that remains dominated by refinancings.
The acquisition, valued at US$6.7bn including debt, is also being financed through a US$2.685bn seven-year term loan B, a US$225m seven-year delayed draw term loan, a US$1.03bn five-year undrawn revolver and approximately US$2.75bn of equity from Apollo and Canada Pension Plan Investment Board, according to an investor presentation.
The buyout, which was announced in December, is expected to create a leader in the food service packaging sector, catering to blue-chip clients like McDonald's, Starbucks, Chick-fil-A and Dunkin'.
Last week, Moody's upgraded Clydesdale Acquisition Holdings, which does business as Novolex, to B2 from B3, while S&P lifted its rating to B+ from B on the back of the merger. Fitch, meanwhile, assigned a first-time rating of BB to the issuer.
"Pactiv’s products, geographic footprint and manufacturing capability will be highly complementary to the Novolex business in creating one of the largest rigid and flexible manufacturers and distributors of plastic and fiber-based food packaging in the North American food and beverage industry," Kim Noland, director of high-yield research at Gimme Credit, wrote last week.
In an investor presentation for potential buyers of the new B2/B+/BB+ rated bond, executives touted a new financial profile that will help drive further deleveraging and set up the business for a potential IPO.
S&P is forecasting that the substantial equity contribution from the sponsors will help lower leverage for the combined entity to around 6.4x from the roughly 8x for the two businesses in 2024.
The acquisition is expected to close as soon as April 1, a day before the Trump administration says it will announce reciprocal tariff hikes on a variety of countries. The company downplayed any tariff risks in the investor presentation, noting that about 90% of its net sales are generated in the US and the vast majority of its materials are sourced domestically.
Along with the acquisition financing, Novolex also announced today that it was offering to buy US$217.3m of Pactiv's outstanding 7.95% 2025s.
Noland pointed out that secured debt made up a good portion of the Pactiv's capital structure and that the new owners are likely to refinance that debt given change-of-control provisions and their desire to free themselves from restrictive covenants.
Novolex was last in the bond market in July last year when it issued a US$500m 6.875% 5.5-year non-call two offering at par to repay a portion of a term loan. Those secured 2030s were trading last week at a dollar price of around 101.117 to yield 6.491%, according to MarketAxess data.
Before that, the company raised US$1.61bn in 2022 in what at the time was one of the largest-ever sustainability-linked bonds – a deal that helped fund Apollo's purchase of a majority stake in Novolex from Carlyle Group.