North America Investment-Grade Corporate Bond: Tapestry’s US$6.1bn-equivalent eight-tranche bond

IFR Awards 2023
2 min read
Sunny Oh

Weaving its magic

Before Tapestry’s M&A financing in November, bond investors were not well acquainted with the company even though it held storied brands Coach, Kate Spade New York and Stuart Weitzman.

That was a broader reflection of how US fashion companies lacked the scale and financial stability to tap bond markets in the way done by well-established European luxury counterparts such as Kering and LVMH. It also showed how investors were wary of lending capital to an industry vulnerable to fast-changing styles and trends.

But the US$8.5bn merger bringing together Tapestry and Capri Holdings, the owner of Michael Kors, Versace and Jimmy Choo, transformed the industry landscape in a deal intended to create the biggest luxury fashion house of its kind in the US.

To fund the acquisition, Tapestry hit both US dollar and euro markets to raise more than US$6bn during two consecutive sessions, with most of the dual-currency issuance coming from the US dollar market.

Though Tapestry’s bond was not large by the standards of the US high-grade market, the size was notable given the company was a Triple B rated borrower in a capricious industry contending with worries that a recession was knocking on the US economy’s door.

It was little wonder that ratings agencies were unhappy with the amount of debt Tapestry was taking on. After the acquisition announcement in August, both Moody’s and S&P put a negative outlook on Tapestry’s credit rating, threatening to put the company one notch above junk.

“It's pretty close to the edge in a space that is very cyclical when [the economy] is arguably at the peak of the macro cycle,” said Tom Hadley, managing director at Morgan Stanley.

The bankers’ jobs were further complicated by the requirement that the entire financing take place without going long, as Tapestry was eager to start cutting debt after the transaction’s close. In a year where investor interest in extended maturities was insatiable, obtaining size without leaning on maturities that enjoyed the strongest demand was a big ask.

Nonetheless, leads Bank of America, JP Morgan and Morgan Stanley managed to obtain the requisite size. Tapestry priced US$4.5bn across senior notes in five tranches of two to 10 years, and €1.5bn across three euro-denominated tranches.

“To be able to go out and get over US$6bn of bonds – it was five times their total amount outstanding in the bond market – was a really tremendous outcome,” said Hadley.

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