Kraft Heinz Bondholders Position for Company's Potential Split

Yahoo

15-07-2025

(Bloomberg) -- Kraft Heinz Co.'s bond investors are positioning for what the company will do next as it considers spinning off its slower-growing brands, looking for probable losers and winners.
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The company is weighing a split that could separate off a large part of its grocery segment and leave behind its faster-growing sauces units, Bloomberg reported on Friday, plans that are still being finalized but that could be announced in the coming weeks.
Some of the company's bonds have weakened relative to Treasuries since then, with the news raising questions about whether the debt could end up at a lower-margin business. The spread on Kraft Heinz's 3.875% notes due 2027, for example, widened five basis points since Friday to 68 basis points, according to Trace. Spreads on high-grade bonds were on average unchanged on Friday and Monday, Bloomberg index data showed.
At the same time, money managers expect some of the company's bonds to rally, if Kraft Heinz looks to buy back securities to cut its debt load before splitting up. Securities with prices below face value may be good candidates for being bought back, as a way to cheaply cut liabilities.
The firm's 4.875% bonds due 2049, which trade at about 83 cents on the dollar, have seen their spreads narrow 2 basis points to 127 basis points over the last three sessions, according to Trace. Companies often buy back debt at some premium to market value, so investors that buy now may still be able to profit.
A spokesperson for Kraft Heinz said the company does not comment on speculation.
'As announced in May, Kraft Heinz has been evaluating potential strategic transactions to unlock shareholder value,' the representative said in a statement to Bloomberg on Monday, repeating a statement the company had provided on Friday.
Where To?
Much of the packaged food maker's debt is vulnerable to more widening after it reports financial results later this month. A weak print could exacerbate 'fears of being stuck in a grocery-only business' for bondholders, wrote James Dunn, head of consumer goods and leisure coverage at research firm CreditSights.
If Kraft Heinz splits, its bonds would likely have to remain with only one of the companies, whichever one ends up representing most of its business, according to a note from JPMorgan analyst Carla Casella.
She believes the split companies would each work to keep investment-grade ratings. That would likely require paying down debt, possibly through a tender offer, according to Julie Hung, a Bloomberg Intelligence analyst who researches Kraft Heinz.
'The question is, when you spin off such a big part of your business, where do the bonds go?' she said.
Kraft Heinz had more than $21 billion of long-term debt, including longer-term securities maturing within a year, as of the end of March.
Navigating the Unknown
Even as bondholders position for any possible splitting, there are many unknowns. If there is a transaction, it's not clear what the capital structures of the separated companies would look like, when a deal would close, how the rating agencies would react, and whether each of the new entities would prioritize staying investment grade.
Among Kraft Heinz's strongest brands are its legacy condiment businesses, along with Kraft macaroni and cheese, and Philadelphia cream cheese. Its Oscar Mayer packaged meats and Velveeta cheese lines are at the bottom, with desserts like Jell-O lying somewhere in the middle.
The company in April lowered its sales outlook for the year and reported a sixth straight quarter of revenue declines, citing tariff threats and weakening consumer sentiment at the time. It has been battling inflation and the arrival of weight-loss drugs, too, which have spurred a shift away from processed foods.
Kraft Heinz is rated BBB, the second-lowest investment-grade level, by Fitch Ratings and S&P Global Ratings.
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