High-grade market awaits jumbo from Mars
Investors are gearing up for a jumbo bond offering from Mars this week, as the company behind household brands Snickers and M&M's seeks to finance its planned US$36bn cash purchase of Pop-Tarts maker Kellanova.
Market participants expect the bond fundraising to be as large as US$25bn. The transaction would be the second jumbo investment-grade bond this week, after Synopsys priced a US$10bn issue on Monday that backed an acquisition.
Any burst of outsized issuance would be very welcome among investors who have faced a scarcity of big-ticket bond offerings in the past two years, even as overall issuance has been strong. In fact, no investment-grade bond offering has topped US$20bn since May 2023, when drug maker Pfizer printed US$31bn of paper for its purchase of Seagen, IFR data show.
Mars said today that it was preparing an offering of notes to help finance the Kellanova acquisition, which was announced in August and is expected to close in the first half of this year. The Virginia-based company aims to price the bond offering as soon as Wednesday, market participants said. Mars did not immediately respond to a request for comment.
Ryan Jungk, senior managing director at Newfleet Asset Management, said on Tuesday that one thing any deal from Mars has in its favor is scarcity value.
Not only has M&A issuance been sparse lately, but Mars itself is not a regular issuer. Its last two trips to the high-grade bond market were in 2023 and 2020, and it raised just US$2.5bn each time, according to IFR data.
What is more, opportunities to buy Mars bonds in the future may also be scarce because investors expect the company to reduce debt levels after adding significant leverage to its balance sheet, Jungk said.
S&P downgraded Mars a single notch to A on February 27 in anticipation of the increased leverage from the M&A debt. The US rating agency forecasted post-acquisition leverage would rise to 4x from 1.2x in the fiscal year ending in December 2024.
“These are the deals you generally want to be in. The big issuance will be behind them, and they will need to be on good behavior," said Jungk.
He expects a potential offering from Mars to draw strong demand even though investment-grade spreads have widened amid concerns about US government tariffs. With spending on consumer staples like snacks expected to hold up during a future economic downturn, Mars's bonds would have value as a defensive holding in a portfolio, he said.
In addition, Moody's noted today that the Kellanova acquisition would increase the diversity of Mars' snack offerings, mitigating the impact of any surge in wholesale cocoa prices that might result from tariffs.