Parkland May Return to High-Yield Debt to Fund M&A, CFO Says
Parkland May Return to High-Yield Debt to Fund M&A, CFO Says
(Bloomberg) -- Parkland Corp., a Canadian fuel distributor expanding in the U.S., says it may turn to the junk bond market to finance potential acquisitions, according to its interim chief financial officer, Darren Smart.
“We don’t need to access the capital markets to fund our plans outside of larger M&A,” Smart said in an interview this week. “I think the M&A market in our industry is currently on hold, I would say, but we are staying very much in discussions.”
Calgary-based Parkland issued C$400 million ($293 million) on June 16 in what was the first Canadian dollar bond offering from a sub-investment grade issuer since the end of April. Proceeds from the transaction were marked for the refinancing of outstanding debt. The notes were priced to yield 6% and were quoted at around 5.672% Thursday, according to data compiled by Bloomberg, as investors’ risk appetite has improved further since the bonds were sold.
Parkland shares fell as much as 1.8% to C$32.56 at 9:46am in Toronto.
The fuel station operator says it will look to reach investment-grade status “over time,” said Smart, who in November assumed the interim finance chief role in addition to his position as Parkland’s senior vice president of strategy and corporate development. The company is currently rated BB, or two notches below high-grade, at S&P Global Ratings. It carries the same grade at DBRS Morningstar and Fitch Ratings Inc.
“Parkland has grown meaningfully over the past few years largely on the back of successful acquisitions,” Fitch said in a June 17 report, citing its C$978 million Ultramar and C$1.68 billion Chevron Canada purchases from 2017. Fitch also said the company’s C$1.5 billion stake purchase in Caribbean fuel marketer SOL Investments and its nearly C$400 million of U.S. acquisitions have supported growth, and backed the rating company’s assumptions for Parkland’s “improving leverage metrics beyond 2020.”
“We will look at the kinds of targets that are consistent with our business today and the things that we’re focused on recently, marketing opportunities, particularly in the U.S. And that’s where a lot of our recent transactions have been,” Smart said. “If we buy a U.S. business, it will make sense to finance it with U.S. dollar debt.”
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