A US$2.65bn green dual-tranche bond backing packaging company Ardagh‘s spin-off of its metal canning unit has been announced in the dollar and euro markets. The transaction marks the company’s debut in the green format though questions have already been raised around how green the use of proceeds truly are.
Ardagh Metal Packaging Finance is planning to raise US$1.15bn-equivalent in 7.5-year non-call three senior secured notes (Ba2/BB/BB+), split between US$600m in US dollars and US$550m-equivalent in euro bonds. It is also prepping US$1.5bn-equivalent in 8.5-year non-call three senior notes (B3/B+/BB-), split across US$1bn in US dollar notes and US$500m-equivalent in euro bonds.
Citigroup is sole green structuring advisor and lead bookrunner, while Bank of America and Deutsche Bank are joint bookrunners. Co-managers are BNP Paribas, Rabobank and Truist.
The company is holding an investor call on Thursday morning, and the deal is expected to price on Friday.
The spin-off will merge the metal packaging unit, Ardagh Metal Packaging, with a special purpose acquisition company Gores Holdings V, in a deal that values the unit at US$8.5bn.
Gores Holdings V is a blank cheque company backed by billionaire Alec Gores, who is among Wall Street’s most prolific SPAC dealmakers and has raised billions of dollars through multiple blank cheque vehicles so far.
Ardagh (rated B3/B+/B+) will receive US$3.4bn of cash from the transaction which will be used to reduce net debt, the company said. It reported US$5.7bn of net debt at the end of 2020 and leverage of 4.9x, based on net debt to the last 12 months Ebitda.
The merger is being financed with US$2.65bn of new green bonds, the US$525m of equity raised through the public listing of SPAC Gores Holdings V last year, and US$600m of new equity capital via a private placement. The SPAC and private placement investors will hold 10% of AMP each. The bond is funding a US$2.315bn dividend to Ardagh, with the balance of the proceeds used for general corporate purposes.
SPACs, or blank cheque firms, are shell companies that raise funds through an IPO to take a private company public and have emerged as one of Wall Street’s most favoured investment vehicles in recent times. For the company going public, striking a deal with a SPAC is an alternative to a traditional IPO.
Green proceeds?
The company intends to allocate an amount equal to the net proceeds of the offering of the notes to finance and/or refinance, in whole or in part, eligible green projects in accordance with the Ardagh Group Green Financing Framework.
Ardagh did not reference any specific green use of proceeds on its Tuesday call, but said as a producer of “infinitely recyclable” and currently recycled packaging, AMP has “impeccable” ESG credentials.
Projects could include energy efficiency, renewable energy, green buildings and waste management, said the framework. Ardagh intends to allocate the proceeds towards a suitable project within three years of issuance of the applicable green instrument. The company has also committed to provide information on how it allocates its green proceeds.
Prior to the bond’s launch, investors told IFR that they uncertain how the bonds would be designated as green given as yet there is no specific project to be financed.
However, other companies such as Starwood Property Trust have been able to allocate green or sustainable bond proceeds to previously completed green projects because the cash is seen as fungible, even if actual proceeds will be used for non-green purposes.
“I’m curious to see how they do that,” said a London based investor earlier this week. “Are they simply going to say the cans we produce are recyclable and therefore any money we spend over the next five years is de facto green, or will they say they’re building a new recycling facility?”
The company intends to use US$2bn of the proceeds for debt reduction at the glass packaging business. The company expects to call the outstanding US$800m of its 6% 2025 unsecured notes with the rest applied mainly to reduce US dollar secured debt.
The balance of US$1.4bn will be used for general corporate purposes including dividends, and around half of any dividend payments to the holding company would be used to repay debt, the company said.
“In the long run, our prospects for the credit are effectively unchanged,” wrote CreditSights analysts on Wednesday. “The company will retain an 80% stake in the beverage can business and receive dividends, thus it will have direct participation in the growth of the business over the next several years.”
Ardagh is a fairly prolific issuer in the high-yield bond market. The company and its subsidiaries have US$8.9bn in outstanding bonds, according to Refinitiv Eikon data. Last year the glass and metal packaging company raised more than US$3.3bn equivalent in just over two months in order to refinance its debt stack.
Source: Nasdaq