Hart raises US$2 bln in debt market to refinance Reynolds

Hart raises US$2 bln in debt market return for Reynolds refinancing

By Paul McBeth

Jan. 28 (BusinessDesk) – New Zealand billionaire Graeme Hart returned to the debt market to refinance up to US$1 billion in bank loans for his packaging empire, and has flagged the company is looking at buying another rival.

Reynolds Group Holdings sold US$1 billion in senior secured notes at a yield of 6.875% and US$1 billion in unsecured notes at 8.25% in a private placement according to IFR Markets, to repay bank loans taken on to fund its multi-billion dollar merger with Pactiv Corp. and extend its debt maturity. That’s twice as much as the packaging company flagged in documents lodged today with the Irish Stock Exchange where some of its bonds are listed. The funds raised will be used to repay a U.S. term loan used to help fund the Pactiv deal.

Standard & Poor’s rated the secured notes BB and the unsecured notes B-, both of which mature in 2021. It cut Reynolds’ existing unsecured debt rating to B- from a B rating.

S&P New York-based credit analyst Cynthia Werneth said in a report that Reynolds doesn’t have much room “for any operating mis-steps or unforeseen challenges,” and that liquidity or covenant concerns or another debt-financed acquisition could prompt a downgrade.

Reynolds didn’t immediately respond to calls with its Australian representative.

The packaging company said it’s “currently considering the acquisition of a business that operates in our industry, which if successful, could result in a transaction being announced by us soon after the completion of the transaction,” though it wasn’t assured of succeeding in its bid.

That comes on the heels of Rock-Tenn Co.’s US$3.5 billion takeover of Smurfitt-Stone Container Corp. earlier this week, making the Georgia-based Rock-Tenn North America’s second-biggest containerboard producer.

The company said the Reynolds unit’s revenue was between US$1.685 billion and US$1.71 billion in the three months ended Dec. 31 and Pactiv’s sales were between US$955 million and US$965 million. Adjusted earnings before interest, tax, depreciation and amortisation was between US$340 million and US$355 million for Reynolds, and between US$165 million and US$170 million for Pactiv.

In November, the owners of Illinois-based Pactiv approved Hart’s US$33.25 a share offer, which was financed through a US$3.2 billion junk bond sale and a further US$2 billion coming from Hart’s lenders. Reynolds also took on US$780 million of Pactiv’s existing debt, and injected US$710 million of cash and equity.

The value in the deal will come as Hart strips an annual US$200 million of costs from the combined entity as duplication in administration and back-office functions is cut, and manufacturing is streamlined for the new company.

Hart began building a packaging empire in 2006 with his NZ$3.3 billion takeover of Carter Holt Harvey, whose forest holdings he subsequently sold.

In 2007, he spent US$2.7 billion on aluminium manufacturer Alcoa's packaging business, which he later renamed Reynolds Group. He later bought International Paper's beverage packaging unit and Swiss company SIG.

(BusinessDesk)

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