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Altria Turns to Europe’s High-Grade Bond Market to Fund Juul Deal

Hannah Benjamin and Allan Lopez

(Bloomberg) -- Marlboro cigarette maker Altria Group Inc. will raise at least 2 billion euros ($2.3 billion) in a four-part bond sale to help fund an acquisition that will give it a foothold in the burgeoning e-cigarette market.

The Richmond, Virginia-based parent of Philip Morris USA Inc. will price euro benchmark-sized notes due in 2023, 2025, 2027 and 2031, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. It’s marketing the shortest tranche at about 130 basis points above midswaps.

The company is paying $12.8 billion for a 35 percent stake in Juul Labs Inc. as it seeks to move away from cigarettes and into higher-growth businesses. At the end of 2018, Altria made a $1.8 billion investment in Canadian pot company Cronos Group Inc. in the first foray of a major tobacco company into cannabis.

Altria said January 31 it expected to access the credit and capital markets to refinance a $14.6 billion term loan it took out to fund the Juul deal. The company said $1.8 billion of the loan remains undrawn but it may apply the funds to its push into marijuana.

Leverage up

The acquisitions pushed up Altria’s total debt to $28.5 billion, about double the $13.9 billion recorded at the end of the third quarter in 2018, analysts at CreditSights Inc. wrote on Monday.

The sharp increase in leverage, to about three times earnings, led S&P Global Ratings to cut Altria’s ratings by two notches to BBB, as did Fitch Ratings. Moody’s opted to maintain the company at A3 but changed its outlook to negative, citing concerns with regulatory risks surrounding the e-cigarette and cannabis markets.

The company held meetings with investors in Europe last week and also held calls with U.S. investors, suggesting the company may still borrow in the American markets. JPMorgan Chase & Co., Barclays Plc, Deutsche Bank AG and Goldman Sachs Group Inc. are arranging Monday’s bond sale.

Altria joins U.S. firms International Business Machines Corp, General Motors Financial Co Inc, FedEx Corp and Emerson Electric Co. in accessing Europe’s debt market this year.

--With assistance from Esteban Duarte.

To contact the reporters on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net;Allan Lopez in New York at alopez11@bloomberg.net

To contact the editors responsible for this story: Tom Freke at tfreke@bloomberg.net, Hannah Benjamin

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