UPDATE 1 - Out of this world: Mars bond attracts US$114bn of orders
Mars sold a US$26bn bond on Wednesday that gathered a whopping US$114bn of orders as the family-owned company behind household brands Snickers and M&M's seeks to fund its planned US$36bn cash purchase of Pop-Tarts maker Kellanova.
The in-demand jumbo transaction was welcomed by investors, who have faced a scarcity of big-ticket bond offerings in the past two years, even as overall supply has been strong. In fact, no investment-grade bond offering has topped US$20bn since May 2023, when Pfizer printed its US$31bn trade for its purchase of Seagen.
At US$26bn, Wednesday's deal from Mars, an infrequent issuer, is the eighth largest high-grade bond offering of all time, IFR data show.
“There’s always strong demand for jumbo sized M&A deal financings, especially if they’re names that have not been heavy regular issuers," said a senior portfolio manager.
As part of the financing package, Mars is also leaning on term loans and a private placement note. Announced in August 2024, the acquisition is expected to close in the first half of the year.
The 144a/Reg S offering, led by BNP Paribas, Citigroup, JP Morgan, Bank of America, Morgan Stanley and Rabobank, was split into eight parts. After holding investor calls on Tuesday, the company priced US$2bn of twos, US$3.25bn of threes, US$4.5bn of fives, US$2.75bn of sevens, US$5bn of 10s, US$2.75bn of 20s, US$4.75bn of 30s and US$1bn of 40s at spreads of Treasuries plus 50bp to 127bp, coming in from IPTs of 75bp area to 155bp area.
Mars achieved remarkable size in a choppy market that showed signs of indigestion only a day earlier, with Tuesday's offerings reporting weaker execution than in past weeks.
Yet while investor concerns about a possible global trade war have pushed credit spreads wider, Mars is coming out ahead because Treasury yields have fallen steeply at the same time. The 10-year Treasury rate ended at 4.28% Wednesday, down around 20bp from the start of the year.
“Maybe you’re paying five to 10bp extra in spread, but your rates have come down a ton," said Ryan Jungk, senior managing director at Newfleet Asset Management, on Tuesday. "The all-in yield you’re paying is still lower."
Before the deal launched, Jungk said he anticipated that Mars would draw strong demand despite the uncertain market backdrop. With spending on consumer staples like snacks expected to hold up in the event of an economic downturn, Mars's bonds would have value as a defensive credit in a portfolio, he said.
A private affair
Market participants said the transaction served as a barometer for the 144a/Reg S market, which tends to trade slightly wider than the generally more liquid SEC-registered market, which requires more disclosure from issuers.
"There are a number of investors who won't be able to participate," said a banker away from the trade. "It's very much going to test the market."
Though there have been large 144a/Reg S investment-grade offerings in the past, they have rarely come from private US companies like Mars with no publicly traded equity. Such borrowers, which include Cargill and Enterprise Holdings, are rare in the high-grade universe.
In a bid to entice demand, Mars pledged to offer more information to investors than when it had previously come to market, according to the senior portfolio manager.
“The issuer is committing to provide more transparency and more disclosure compared to its past financings," the portfolio manager said. "So even though there are clearly disadvantages, some of those are being addressed."
Moreover, the ubiquity of Mars candies in stores and supermarkets helped to offset the view that the private company was opaque.
"People are familiar with the product," said another investor. "I think if the product was more esoteric, it would be more difficult."
Scarcity value
Any concerns about the bond format were also likely to be offset by the scarcity value attached to an event-driven offering from the candymaker. Not only has M&A issuance been sparse lately, but Mars itself is not a frequent borrower. 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.
Both Moody's and S&P downgraded Mars bonds this year by a single notch to ratings of A2/A in anticipation of the increased leverage from the M&A debt. S&P 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.