Berkshire Deal to Boost Heinz Leverage

Acquisition may strip the food company of its investment-grade rating.

Billionaire Warren Buffett’s love of ketchup and hash browns is transforming H.J. Heinz Co. into the most-leveraged food maker in America.

Buffett’s Berkshire Hathaway Inc. and 3G Capital Inc.’s $23 billion acquisition of Heinz may double the company’s total debt to five times earnings before interest, taxes, depreciation and amortization, according to Fitch Ratings, the highest of any comparable food company. The cost to protect Heinz’s debt from losses soared to a record after the announcement.

Higher Leverage

“It took the market time to digest just how leveraged, and how subordinated, senior unsecured bondholders will be as a result of approximately $10.5 billion of senior secured bank debt that will be layered ahead of bonds that don’t benefit from a change of control,” said John Kneebone, a credit analyst at Paris-based BNP Paribas SA. “Many see the potential for leverage to go higher than anticipated levels” of about 6.1 times, he said.

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