Hart pounces on lowest rates in 10 years to sell US$1 bln of junk bonds

Hart pounces on lowest rates in 10 years to sell US$1 bln of junk bonds

By Gareth Vaughan

New Zealand's richest man Graeme Hart appears to have pulled off another canny move. Hart has moved to secure long-term debt funding at what looks like the lowest rate for highly geared companies in the last 10 years. Hart this week sold US$1 billion (NZ$1.38 billion) of senior unsecured notes in the United States private placement market.

According to Thomson Reuters, the eight year notes will pay 8.5% annual interest with the first twice yearly payment due on November 18. The notes, which Standard & Poor's has given a B- rating, were priced 509 basis points over US Treasuries. Hart will use the money raised, along with a US$750 million bank loan, to fund further consolidation of his global packaging empire. Hart's Reynolds Group Holdings is buying another of his companies, the Evergreen Packaging group – formed through his acquisition of the United States domiciled Evergreen Packaging and Blue Ridge Paper Products in 2007 – and New Zealand’s Whakatane paper mill from Carter Holt Harvey.

The deal is expected to be finalised in May. Reynolds Group already consists of SIG, the world’s second biggest maker of aseptic beverage carton packaging (which allows the likes of juice, milk, soups and sauces to be stored for extended periods without refrigeration) with 19% market share, Reynolds Consumer, the dominant US maker of foil, wraps and bags used for food storage and preparation, and Closures, a leading global provider of plastic bottle caps used for soft drinks and bottled water.

The new debt lifts Reynolds total debts to about NZ$8 billion and comes as speculation mounts that Hart may be preparing to sell, perhaps via a sharemarket float, all of part of the packaging group. Hart, estimated by Forbes to be worth US$5.3 billion, has also raised the fresh debt just as the riskiest class of corporate bonds moves close to par for the first time in three years. According to Forbes, the high-yield bond market now trades at US99.48 cents on the dollar.

This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers.

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