Conagra Brands Inc. isn’t in a hurry to tap the credit markets — even though the food manufacturer has a $500 million bond coming due in August, less than four months away.
(Bloomberg) — Conagra Brands Inc. isn’t in a hurry to tap the credit markets — even though the food manufacturer has a $500 million bond coming due in August, less than four months away.
“We still have time and don’t want to go to market too early,” said David Marberger, the company’s chief financial officer. Chicago-based Conagra, which owns brands including Birds Eye and Healthy Choice frozen foods as well as Slim Jim jerky, could wait until next month before it decides how to manage its maturity, Marberger said in an interview.
The Federal Reserve is set to announce its next policy decision on May 3, with investors and other market participants expecting another increase in interest rates. That would further drive up financing costs for companies following a string of rate boosts since March 2022.
Conagra holds a Baa3 rating from Moody’s Investors Service and is graded BBB- by S&P Global Ratings and Fitch Ratings, one notch above junk for each service. Highly rated companies usually seek to refinance 12 to 18 months ahead of an upcoming maturity, according to a recent report by S&P. Conagra however wants to avoid extra costs that could stem from refinancing ahead of the maturity date, Marberger said.
Still, the company will likely face a higher coupon than the 0.5% rate on its maturing bond, which priced in August 2021. Average coupon rates have increased for both investment-grade and high-yield companies since the Fed started raising rates to combat high inflation.
Debt maturities
Highly rated US companies have $581 billion in debt maturing this year, including an estimated $427 billion in the second, third and fourth quarters, according to S&P. Next year, $720 billion in US investment-grade debt is set to come due, S&P said.
Conagra is currently reviewing its options for the Aug. 11 maturity, Marberger said. Those include the commercial paper, the bank loan and bond markets. Bond debt has become more attractive in recent months as credit spreads have tightened and Treasuries trade lower, the company’s CFO said.
Conagra has a $2 billion credit facility that it could tap if needed. “We are in those markets every day and track them closely,” Marberger said, referring to the commercial paper markets. Conagra’s next bond maturity following the one in August comes in May 2024, when it has to repay or refinance $1 billion in debt.
A refinancing transaction later in the year can potentially make sense as bond traders and other market participants in recent weeks have boosted bets on possible rate cuts by the Fed later this year, causing borrowing costs to fall.
The company’s priority right now is to bring down its leverage to 3.0 times net debt to earnings before interest, depreciation, taxes and amortization, from 3.6 times during the quarter ended Feb. 26. Conagra plans to generate higher cash flow from operations and reduce its spending on working capital and capital expenditures, Marberger said, adding that the company reviews its portfolio on a regular basis. Conagra said it will spend about $370 million on capital expenditures during the current fiscal year, down from the $500 million initially.
The company reported net sales of $3.1 billion for the quarter ended Feb. 26, up from $2.9 billion during the prior-year period. Net income came in at $342.2 million, compared with $218.4 million a year earlier.
Conagra declined to provide a timeframe by which it wants to achieve it leverage target.
“I think they will reach their 3.0 times goal sometime in fiscal 2025,” said Diana Rosero-Pena, an analyst at Bloomberg Intelligence, in response to emailed questions. This will likely be achieved through a combination of debt down payments and growth in Ebitda, Rosero-Pena said.
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