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Heinz opts for dollars on $12 billion LBO loans

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(Globalpost/GlobalPost)

By Michelle Sierra and Caleb Frazier

LONDON (Reuters) - Ketchup maker H.J. Heinz Company <HNZ.N> has scrapped euro and sterling-denominated loans on its $12 billion (8 billion pounds) buyout financing in favour of a simpler all-dollar deal after strong demand from US investors, bankers said on Thursday.

The company's decision to opt for dollar loans has disappointed many European bankers and investors which were equally keen to lend to a strong global brand and household name.

"There was a good, liquid book in the States so it is easy to print. The view is that it is the most efficient, easiest and cleanest way to issue in one currency," a banker said.

The $12 billion financing backs the company's $28 buyout, including assumed debt, by Warren Buffett's Berkshire Hathaway and 3G Capital which is the largest in food industry history.

The original loan package consisted of a $1.5 billion revolving credit facility and $10.5 billion in term loans which were split into a six-year term loan B1 tranche and a seven-year term loan B2 tranche.

The term loans were to include an $8.5 billion U.S. dollar-denominated loan, as well as up to $1.4 billion in euros and around $600 million in sterling.

Lender commitments are due on Friday at noon.

JP Morgan and Wells Fargo are joint bookrunners on the deal. Banks joining the deal on a sub-underwriting basis include Banco do Brasil, Barclays, Citigroup, HSBC, Itau Unibanco, RBC and UBS among others, bankers said.

PRICING DYNAMIC

Pricing on the U.S. dollar term loan B1 and B2 is expected to come in at the lower end of 275-300 bps over Libor due to strong demand. A 1 percent Libor floor and a 99.5 original issue discount are also payable.

"There was massive demand for the US paper at tighter pricing," a second banker said.

The euro and sterling tranches were expected to pay a slightly higher margin of 300-325 bps over Euribor and Libor.

The revolving credit will pay a margin of 50 basis points (bps) over Libor if it remains undrawn or 200 bps if drawn.

The company is currently selling $2.1 billion in second-lien notes to refinance a second-lien bridge loan.

The term loan B1 will have 101 soft call protection and the term loan B2 will have soft call protection of 101 in years one and two.

Heinz corporate family ratings are Ba3/BB-/BB- and the facility ratings are Ba2/BB/BB+.

The issuer on the loan is Hawk Acquisition Sub, Inc, initially, which will switch to H.J. Heinz Company when the acquisition closes.

Heinz will be bought for $72.50 a share, or $23.2 billion in cash.

(Additional reporting by Claire Ruckin. Editing by Tessa Walsh)

http://www.globalpost.com/dispatch/news/thomson-reuters/130321/heinz-opts-dollars-12-billion-lbo-loans