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Fitch: Hillshire CDS Spike 55% on $6.6B Pinnacle Foods Purchase

May 14, 2014



NEW YORK--(BUSINESS WIRE)-- Spreads on five-year credit default swaps (CDS) on The Hillshire Brands Co. widened 55% Monday, according to Fitch Solutions. The move was in response to news that the food company had entered into a definitive agreement to acquire Pinnacle Foods Inc. for $6.6 billion. After steadily pricing in line with 'BBB' levels for the past year, credit protection on Hillshire's debt spiked out to price in below investment grade space.

CDS liquidity for Hillshire has risen over the past month, from trading in the 30th regional percentile to the 19th, a sign of growing pricing uncertainty. Fitch Tuesday lowered Hillshire's Long-term Issuer Default Rating three notches to 'BB' from 'BBB' and also maintains a private rating on Pinnacle.

The Pinnacle buy is valued at $6.6 billion including Pinnacle's $2.3 billion of net debt. Hillshire intends to finance the purchase with $4.8 billion of incremental debt and the issuance of $2.1 billion of equity.

Tuesday's downgrade reflects Fitch's pro forma leverage estimate and assumption that the transaction has a high probability of completion. The Board of Directors for both companies unanimously approved the transaction. Hillshire expects the deal to close by September 2014 following regulatory and shareholder approval. Given that the Blackstone Group L.P., which owned 51.1% of Pinnacle's outstanding stock as of April 2014, has agreed to vote its shares in favor of the transaction, Fitch believes the probability of completion is high. Due to limited product overlap, there should not be any anti-trust issues. Hillshire also has committed financing in place for the entire amount of incremental debt.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.



Fitch Solutions

Diana Allmendinger, +1 212-908-0848

Director

Fitch Solutions

or

Kellie Geressy-Nilsen, +1 212-908-9123

Senior Director

Fitch Wire

or

Media Relations:

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Solutions


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