Starbucks took advantage of stabilizing credit markets on Wednesday with a new bond offering, returning to the investment-grade primary after a nearly two year hiatus.
The Seattle-based coffee retail chain priced a two-part senior unsecured note containing a US$500m two-year non-call one floating-rate note and a US$1bn 10-year fixed portion. The notes landed at 42bp over SOFR and 110bp over Treasuries, respectively, tightening from price thoughts of 70bp area plus SOFR and 135bp area over Treasuries.
Starbucks' new issue, rated Baa1/BBB+/BBB, joined a slew of bond deals that poured into the IG primary on Wednesday as the corporate bond market's tone improved. Last week, borrowers were reluctant to raise debt after interest-rate turbulence saw demand thin out for some deals and offerings trade wider on the break.
Coffee Sweetener
Starbuck's two-year tranche stood out as few callable short-term bonds had been seen in the IG primary over the past few weeks, said a banker.
"It just shows that there's a little bit more confidence in the receptivity to new issues today than we would have necessarily seen for most of last week," said the banker.
Following the offering's announcement, Starbuck's 4.5% 2048 notes tightened by 3bp to 149bp over Treasuries on Wednesday, according to ICE BofA data, in line with the broader gains in US investment-grade corporate bonds on the day.
The new bond will be used for general corporate purposes that could include paying down US$1bn of maturities due in May and June, which represented most of the coffee chain's short-term debt.
During its fiscal first quarter earnings release on February 1, Starbucks said staffing had been hit by labor shortages during the surge in Omicron variant cases at the turn of the year, incurring hefty costs associated with higher transportation charges and pay for sick workers self-isolating for Covid-19.
"[Starbucks] has done a commendable job managing margin erosion to-date, but we think December-February will likely be one of the more difficult staffing condition periods this pandemic given the high levels of absenteeism amid the already strained labor pool," said CreditSights analysts.
The offering is led by Bank of Nova Scotia, Citigroup, Morgan Stanley, US Bank and Wells Fargo.
Updated story: Added pricing details