Coca-Cola Consolidated Raises $1.2B Bond for $3.1B Stock Buyback

Key Takeaway

• Coca-Cola Consolidated raised $1.2 billion in bonds to fund a $3.1 billion share buyback, marking its first public offering since 2015.
• Subway plans a bond sale to support Roark Capital Group's $9 billion acquisition, using whole business securitization.
• Gray Television aims to refinance debt with a $1 billion bond and up to $750 million loan, following strong earnings reports.

Coca-Cola Consolidated's Bond Sale

Coca-Cola Consolidated Inc. successfully raised $1.2 billion in the blue-chip bond market on Tuesday to fund a significant share buyback initiative. The company issued bonds in two parts, with the longest portion being a $500 million 10-year security yielding 1.05 percentage points over Treasuries, down from initial discussions of around 1.3 percentage points. This bond sale marks the company's first public offering in the investment-grade dollar debt market since 2015, according to Bloomberg data.

The bond issuance follows the company's announcement of a $2 billion share buyback, with additional shares being purchased from Coca-Cola Co., potentially bringing the total buyback to $3.1 billion. The proceeds from the bond sale will primarily fund these equity transactions, with any remaining funds allocated for general corporate purposes.

J. Frank Harrison III, chairman and CEO, stated, "We believe this is an ideal time to leverage the strength of our balance sheet by taking on a prudent amount of debt to return cash to stockholders and build long-term value." The bond sale was managed by Bank of America Corp., PNC Financial Services Group, Truist Securities Inc., and Wells Fargo & Co. The debt is expected to be rated Baa1 by Moody’s Ratings and BBB+ by S&P Global Ratings. However, S&P recently revised the company's outlook to negative from stable, indicating potential rating downgrades by the first half of fiscal 2026 if leverage is not reduced.

Subway's Bond Sale Plans

Subway is preparing for a bond sale next week to support Roark Capital Group's $9 billion acquisition of the sandwich chain. The financing will utilize a whole business securitization, a method where a company pledges most of its assets as collateral. The exact size of the deal, led by Morgan Stanley and Barclays Plc, remains undetermined. Whole business securitizations are common among businesses with extensive franchised networks, effectively mortgaging assets such as royalties, fees, and intellectual property.

Roark Capital Group agreed to purchase Subway for over $9 billion last year, with $5 billion of financing from major banks. Subway has grown significantly, now boasting over 37,000 restaurants globally, up from just 16 in 1974. The whole business securitization sector has seen substantial deals from companies like Dunkin’ Brands Group Inc., Domino’s Pizza Inc., and Taco Bell. This year alone, seven whole business deals, including those by Zaxby’s and Nothing Bundt Cake, have been priced, according to Bloomberg News data.

Gray Television's Refinancing Efforts

Gray Television Inc. announced plans to sell $1 billion in senior secured notes as part of a broader refinancing strategy. The proceeds from this five-year bond will be used to refinance a $1.2 billion loan due in 2026 and repurchase its 5.9% senior notes also due in 2026. Additionally, Gray aims to raise up to $750 million from a new five-year term loan. The completion of both the bond and loan deals is contingent upon each other.

This move follows Gray's earlier loan sale being pulled from the market, raising concerns among investors about the financial stability of traditional broadcasters amid competition from streaming services. However, Gray's recent earnings report, which exceeded analyst estimates, has helped to alleviate some of these concerns. The company highlighted that its core advertising business has recovered from the Covid-19 pandemic, and its local news stations are well-positioned to benefit from upcoming political races across the United States.

Gray’s 7% bond due in 2027 is currently trading at about 90 cents on the dollar, according to pricing source Trace, indicating a level of investor confidence in the company's ability to manage its debt obligations effectively.

Management Quotes

• J. Frank Harrison III, Chairman and CEO of Coca-Cola Consolidated:

  "We believe this is an ideal time to leverage the strength of our balance sheet by taking on a prudent amount of debt to return cash to stockholders and build long-term value."