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Yum! offers $4.6 billion of new debt in anticipation of split from China business

May 19, 2016

At the close of business Wednesday, Yum! Brands Inc announced that it was offering $4.6 billion of new debt to optimize its capital structure ahead of a planned separationof its China business. The financing is another milestone in the company's previously communicated plan of targeting total company-wide leverage of approximately 5.0X EBITDA and returning approximately $6.2 billion of capital to shareholders before separating its China business at the end of 2016, according to a company press release.

This new debt, according to a press release, is intended to:

• Return capital to shareholders.
• Repay borrowings of the existing revolving credit facility.
• Pay associated transaction fees and expenses.
• Support "general corporate purposes."

This debt will be issued by subsidiaries operating the major restaurant brands of KFC, Pizza Hut and Taco Bell. It will be comprised of:

• A new Senior Secured Credit Facility (with $800 million Term Loan A and $1.5 billion Term Loan B).
• $2.3 billion of Senior Unsecured Notes.

       Plus:

• A $1 billion revolving credit facility replacing the existing revolving credit facility (collectively, the “Financing”).

The release said that Yum! Brands' legacy publicly-traded notes will remain in place as unsecured obligations. Additionally, a bank meeting for the Senior Secured Credit Facility is set for May 23 in New York. The Financing, which is subject to market and other conditions, is expected to close in the second quarter of this year, according to the release.