A Burger King sign and a Tim Hortons sign are displayed in Ottawa on Aug. 25, 2014.Sean Kilpatrick
The $2.25-billion (U.S.) high-yield bond deal to back the takeover of Tim Hortons Inc. by Burger King Worldwide Inc. is not going to be very high yield – probably thanks to the involvement of Warren Buffett.
The banks leading the deal are marketing the debt this week, and the early price talk from the sales desks is that the bonds will be sold with a yield of about 5.75 per cent, said a person following the sale.
For a bond that's expected to be CCC-rated, that's pretty cheap. The Bank of America Merrill Lynch US High Yield CCC or Below Effective Yield index is currently at 9.86 per cent, according to the Federal Reserve Bank of St. Louis.
A 5.75 per cent yield would put the debt about on par yield-wise with the FINRA/Bloomberg U.S. High Yield Index – which includes a lot of higher rated bonds. So by yet another measure, it's cheap financing for the Buffett-3G-Burger King International group that's buying Tim Hortons.
The Buffett effect is powerful. After all, Mr. Buffett is getting 9 per cent on his preferred equity. And buyers of the bonds will be ahead of him in the capital structure.
Bloomberg View's Matt Levine called it a "halo effect" and noted that "Who wouldn't want to buy debt that's senior to Warren Buffett in the capital structure?"
The price talk is expected to firm up later Monday, with books closing on Tuesday. Final pricing will be Wednesday, at the same time as Burger King finalizes its $7-billion bank loan to firm up all the financing.