Martin Marietta completes its ‘largest bond deal’ ever, may de-lever

By Devika Patel

Knoxville, Tenn., Feb. 13 – Martin Marietta Materials Inc. could de-lever using the excess cash flow it generates as a result of the new tax law.

The company recently issued $1.4 billion of new debt, its biggest bond sale ever.

“In December, we successfully executed the largest bond deal in the company’s history, issuing $1.4 billion of debt in anticipation of closing the Bluegrass Materials Co. acquisition in the first half of 2018,” chairman, president and chief executive officer Howard Nye said on the company’s fourth quarter and year ended Dec. 31, 2017 earnings conference call on Tuesday.

“The bond deal itself was five times oversubscribed, allowing us to obtain favorable credit terms and establish a 30-year benchmark bond, reopening a category of debt investors to the company.

“The newly issued debt reflects a weighted average interest rate of 3.5%,” Nye said.

The new tax law gives the company more free cash flow, which could potentially be used to de-lever.

“The tax law change does obviously give us more cash flow going forward and a greater ability to either de-lever or pursue more acquisitions or share buybacks at the right point,” senior vice president and chief financial officer Jim Nickolas said on the call.

“It gives us more cash flow to work with,” Nickolas said.

At Dec. 31, 2017, the company’s consolidated net debt-to-consolidated EBITDA ratio for the trailing 12 months was 1.58x.

EBITDA was $262.4 million for the fourth quarter, compared to $229.7 million for the same period in 2016.

EBITDA was $1,004,400,000 for 2017, compared to $971.6 million for 2016.

On Dec. 6, the company sold $1.4 billion of senior notes (Baa3/BBB+) in three tranches. The deal priced on Dec. 6 and settled on Dec. 20.

The company sold $300 million of floating-rate notes due Dec. 20, 2019 at Libor plus 50 basis points. These notes priced at par.

A $500 million tranche of 3.5% 10-year notes were sold with a Treasuries plus 120 bps spread. These notes priced at 99.75 to yield 3.53%.

Martin Marietta sold $600 million of 4.25% 30-year notes with a spread of 155 bps over Treasuries. These notes priced at 99.681 to yield 4.269%.

The notes priced on the tight side of talk.

Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Wells Fargo Securities LLC, BB&T Capital Markets and SunTrust Robinson Humphrey Inc. were the bookrunners.

Proceeds were earmarked to acquire Panadero Corp. and Panadero Aggregates Holdings, LLC for $1,625,000,000 in cash and to refinance in full at maturity the $300 million of the company’s 6.6% senior notes due April 15, 2018.

On June 26, 2017, Martin Marietta and Bluegrass Materials Co. announced a definitive agreement under which Martin Marietta will acquire Bluegrass for $1,625,000,000 in cash.

Bluegrass Materials is a subsidiary of Panadero Aggregates Holdings, LLC.

The producer of construction aggregates is based in Raleigh, N.C.

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