Restaurant Brands touts new bond deal, anticipates redeeming older notes and preferred shares

By Paul Deckelman

New York, Sept. 19 – Restaurant Brands International Inc., fresh off Monday’s big junk bond deal in which it did a $1.5 billion add-on to the already sizable issue of eight-year secured paper that it sold just last month, has completed its planned slate of debt refinancing transactions for now – and is looking ahead to cleaning up its more than $11 billion balance sheet a little by redeeming older existing debt and preferred shares.

On Tuesday in Toronto, Josh Kobza, the chief financial officer for the Oakville, Ont.-based operator of the Burger King, Tim Hortons and Popeyes Louisiana Kitchen fast quick-service restaurant chains, told Scotiabank’s 26th annual Back To School Conference for investors in consumer-oriented businesses that the proceeds from Monday’s $1.5 billion add-on offering to its existing 5% second-lien senior secured notes due 2025 “will be used to take out the last of our old 6% second-lien notes” due 2022.

Last month, the company sold $1.3 billion of those 5% notes, which priced at par in a quick-to-market transaction on Aug. 8 after the deal was upsized from an originally announced $1 billion. It then called for redemption on Sept. 7 some $1.25 billion of the existing 6% notes at a price of par plus accrued interest, leaving another $1 billion of those 6% notes still outstanding.

On Monday, it did another quickly shopped bond deal, pricing its $1.5 billion add-on to the 2025 paper at 100.5 to yield 4.887%, after the add-on was upsized from an originally announced $1.3 billion. It then called the remaining $1 billion of the 6% notes for redemption on Oct. 18 at a price of 103 plus accrued and unpaid interest.

Looking ahead to preferred shares

Kobza told the Scotiabank conference participants that “together with a couple of other financings we’ve done over the last few months, what this does is it really sets us up going into 2018, to have a clear view of what our capital structure will look like for next year – once we get past our expected redemption of the preferred shares, which we have our first opportunity to do in December.”

In December 2014, Restaurant Brands sold approximately 68.53 million 9% cumulative Class A compounding perpetual voting preferred shares to an affiliate of Berkshire Hathaway Inc. for a price of $43.775848 per share, or about $3 billion in total, as part of the financing for Burger King’s acquisition of Tim Hortons, forming Restaurant Brands.

Those preferred shares can be redeemed by the company at any time on or after this coming Dec. 12, the third anniversary of their original issue date, at a price of $48.109657 per preferred share, plus accrued dividends.

“So, it was an important kind of a milestone for us yesterday,” Kozba said, “and brings increasing clarity to what the capital structure is likely to look like as we get into next year.”

He continued, “Now that we’ve completed all of the debt financings, as of [Monday], I think we’re in a pretty good place to be able to redeem the preferred shares in the coming months, and I think once you get through that point, we’ll be at a stage where our leverage profile is more consistent with some of our fully franchised peers in the U.S.”

He did not specify which particular companies he was referring to.

Kobza also told the investors at the conference that “I think it’s important to look at the cash flow profile that the company will have, once you remove the preferred shares – it will make for a very large increase in our cash flow profile, given the difference in effective interest rates between the new debt that we’ve raised” and the older debt being redeemed.

“So as we get into next year, we’ll have to look at how we continue to allocate capital – and that’s a discussion that we’ll give more and more thought to as we get closer to 2018.”

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