Last updated: 19:43 / Tuesday, 7 May 2013
Corporate fundamentals remain

Muzinich: Heinz’s LBO pricing does not reflect a return to excessive leverage

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Muzinich: Heinz’s LBO pricing does not reflect a return to excessive leverage
  • Muzunich considers the Heinz deal to be a one‐off and in no way reflective of an uptick in LBOs

Headlines have been awash in talk of the Heinz LBO. The bonds priced at month end at 4.25% ‐ the lowest yield ever for an LBO issue. In its latest Corporate Credit Market Snapshot Muzunich considers the Heinz deal to be a one‐off and in no way reflective of an uptick in LBOs or a return to excessive leverage. “Heinz was relatively unique since it is a highly recognizable brand name and benefitted from Warren Buffett’s participation. Buffett’s sizeable equity contribution helped drive down financing costs for the bond and loan portions of the deal,” highlights the snapshot, available in the asset manager's website.  

According to Muzinich, the deal also highlights the strength of the loan market ($10 billion of Heinz loans cleared the market) and the generally favorable borrowing rates currently available. Muzinich does not believe the deal reflects deteriorating corporate fundamentals. “On the contrary – corporate fundamentals remain strong as evidenced by the increase in rising stars (high yield companies that are upgraded to investment grade status),” points out the asset manager in the report. Last month in the U.S. high yield market, four companies with $12 billion of bonds outstanding, were upgraded to investment grade. “This is the highest number of monthly upgrades from high yield to investment grade in more than 7 years and underscores the strong corporate fundamentals that underpin the current high yield market”, they conclude.

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