Pilgrim’s Pride, the global meat and prepared food processor, is offering the first sustainability-linked bond from the meat and poultry sector on Thursday, and at US$1bn the deal is on track to become the largest of a handful of SLBs to emerge in the US high-yield market so far.
The US$1bn senior unsecured 10-year non-call five note is tied to the company’s targets to reduce greenhouse gases. It is the largest SLB to emerge in the US high-yield market, after US$900m offerings from technology company Level 3 in January and a US$500m deal from aluminum producer Constellium in February.
Price talk on the deal is 4.375% area. The company’s longest dated existing bond, a 5.875% 2027 senior note, was trading at a yield around 3.8% on Wednesday according to MarketAxess. Proceeds will be used to refinance the company’s 5.75% senior notes due 2025.
If the company has not met sustainability targets by 2025 the coupon will increase by 25bp per year, until the target is met and confirmed by an external verifier.
The B1/BB+/BB+ rated bond is tied to the company’s targets of achieving a 17.5% reduction in Scope 1 and 2 greenhouse gas emissions by 2025 and 30% reduction by 2030, from a 2019 baseline.
Earlier this week the company committed to achieving net zero greenhouse gas emissions by 2040.
“These actions reinforce our company’s long-standing commitment to responsible environmental stewardship and sustainable food production,” said Fabio Sandri, Pilgrim’s global chief executive officer in a statement.
Sustainability-linked notes are seen as a more accessible way for smaller high-yield issuers to tap into demand for ESG securities. Unlike traditional green bonds, the issuer is not tied to using the proceeds for specific green projects. However, some investors in the market feel that the penalties for missing the sustainability targets are too low and too late in the life of a bond to have an impact.
The company has a range of other sustainability targets, including reducing electricity, water, and natural gas usage, achieving a certain score on animal health scorecards, and adherence to supplier codes of conduct, but the bond offering is only tied to performance on the greenhouse gas target.
An investor following the deal noted that Pilgrim’s Pride is 80% owned by Brazilian beef producer JBS. J&F Investimentos, the owner of JBS, paid US$128.5m to settle foreign bribery charges in the US in 2020, and environmental organization Greenpeace said in August 2020 that the company’s Brazilian cattle production was tied to suppliers engaging in illegal deforestation in the Amazon.
“They have had their fair share of governance and and environmental issues,” said the investor, referring to JBS.
Barclays was a lead left bookrunner alongside Bank of Montreal and RBC. Barclays and RBC were sustainability structuring agents.
