HG bonds: Altria places $5.5B refi-driven offering post earnings; terms

Altria Group Inc. today completed a $5.5 billion, four-part offering as it targets outstanding maturities.

Proceeds from today's bond placement will be used to fund a concurrent tender offer for up to $3.65 billion of various outstanding notes due between 2022 and 2049; the redemption of $1 billion of 3.49% notes due February 2022; and for general corporate purposes, according to regulatory filings.

On Jan. 28, Altria released quarterly earnings of $1.03 per share, versus a consensus $1.02 per share on a GAAP basis, on revenue of $5.055 billion, versus expectations of $5.01 billion, according to S&P Capital IQ.

The Richmond, Va.-based tobacco and smokeless products company last tapped the market in May 2020, when it placed a $2 billion, three-part offering, across 2.35% five-year notes due May 2025 at T+200, or 2.359%; 3.40% 10-year notes due May 2030 at T+280, or 3.437%; and 4.45% 30-year notes due May 2050 at T+320, or 4.499%. For reference, the 2030 issue traded late last month at a G-spread of 121 bps, and the 2050 issue changed hands last week at a G-spread of 180 bps, according to MarketAxess.

Earlier today, the ratings agencies assigned respective BBB/A3/BBB ratings to the new offering. The outlooks are stable all around.

S&P Global Ratings noted that Altria maintains a dominant position in the U.S. tobacco industry with significant pricing power, market share, and brand equity. "The company had a solid financial performance in 2020, driven by its core tobacco business, as cigarette volume declines moderated as a result of the COVID-19 pandemic. Increased time spent at home and fewer social engagements have led to more tobacco-usage occasions for consumers, and substantial unemployment benefits helped sustain consumption levels despite historically high unemployment rates," the agency said today.

Moody’s said the refinancing favorably addresses a portion of Altria's near-term and high coupon maturities without materially affecting cash interest costs and by extending the weighted average maturity. "However, the company is incurring one-time charges to retire bonds early and also recently announced a new $2 billion share repurchase program to be completed by June 2022, actions that weaken de-leveraging progress and are credit negative. The A3 rating and stable outlook are nevertheless unchanged because Altria continues to generate stable free cash flow, and Moody's projects the company will reduce debt-to-EBITDA to just below 2.5x over the next 12 months," Moody’s said today.

Fitch noted that Altria maintains a shareholder-friendly stance. "Fitch expects Altria to maintain a consistent capital allocation framework with a shareholder-friendly posture that includes dividend payouts of around 80% of adjusted diluted earnings per share (EPS), supplemented at times with active share repurchases. The company recently announced a $2 billion, 18-month share repurchase program following a decision to rescind the remaining portion of a $500 million program in 2020 due to operational uncertainties caused by the coronavirus pandemic. Long-term leverage, defined as total debt to operating EBITDA after associates and minorities, is projected in the mid-2.0x range. Leverage for 2020 was around 2.5x," Fitch said today. Terms: