Home Depot pitches 3-part bond deal to replenish cash post HD Supply buy

After a relatively slow year for M&A-driven bond offerings in 2020, Home Depot Inc. today is kicking off the new year with a benchmark-sized public offering of senior notes in three parts, backing its recently completed, $8 billion acquisition of HD Supply, according to participants in the offering.

Early price thoughts for the proposed bond offering started in the areas of T+60 for seven-year notes due March 15, 2028, T+75 for 10-year notes due March 15, 2031, and T+100 for 30-year bonds due March 15, 2051, the participants said. Active bookrunners are J.P. Morgan, BofA Securities, Deutsche Bank and Morgan Stanley. The issues are subject to make-whole call provisions, standard tenor-specific par calls prior to maturity, and change-of-control put provisions for investors.

Proceeds of the proposed offering will replace a portion of the cash on hand used to finance the acquisition of HD Supply. Any remaining proceeds will be used for general corporate purposes.

Home Depot's A/A2/A ratings profile reflects stable outlooks on all sides, and the grades were unchanged as a result of the HD Supply play, which S&P Global Ratings characterized as a credit positive. HD Supply distributes maintenance, repair, and operations products in the U.S. and Canada.

“Pro forma for the transaction, we expect S&P Global Ratings-adjusted leverage of around 2x. Home Depot is committed to a leverage target of 2x, which approximates our adjusted ratio, a key consideration for our ratings,” Ratings stated in a Nov. 17, 2020, research note. It noted “strong” third-quarter earnings, including a 24% increase in comparable sales and a 23% increase in company-reported operating income, as “robust demand for home improvement projects along with low borrowing rates continue to boost sales for the company's products.”

The big box retailer last placed a benchmark bond offering late in March 2020, as lockdown dynamics settled over the marketplace, but as credit markets rallied on the introduction of Federal Reserve liquidity mechanisms for high-grade issuers. Home Depot issued $5 billion of notes, including at T+190 for 2.5% seven-year notes; T+195 for both a 2.7% 10-year issue and 3.3% 20-year issue; and at T+200 for 3.35% 30-year bonds.

Its borrowing-cost proposition has improved since then. The 2.7% 2030 issue changed hands last week at T+42, or 1.35%, while the 3.35% 2050 issue traded at T+78, according to MarketAxess.

Today's offering comes after a relatively slow year for bonds backing M&A efforts. The volume of such deals declined more than 22% last year, despite a nearly 60% surge in overall issuance, according to LCD. M&A-driven deals accounted for less than 9% of total 2020 issuance volume, or roughly half the share recorded in 2019.