'Junk Bond' Yeom Brands Successfully Issues Corporate Bonds... Will COVID-19 Induced Credit Squeeze Ease?

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Yum Brands, the parent company of KFC, Taco Bell, and Pizza Hut, issued corporate bonds on the 30th (local time) in the junk bond market frozen due to the spread of the novel coronavirus infection (COVID-19). This is the first junk bond transaction traded in the so-called U.S. high-yield bond market since April 4, amid rollercoaster stock markets in major countries such as the U.S. and Europe due to COVID-19.

According to Bloomberg and other sources, Yum Brands conducted a bond transaction worth $600 million (approximately 730 billion KRW) on that day. The bonds mature in 2025 with a yield of 7.75%. Considering that the $800 million 10-year bonds issued in September last year had a yield of 4.75%, Yum Brands now faces higher costs.

Foreign media are focusing on the fact that this Yum Brands transaction is the first junk bond traded in the U.S. bond market since April 4. Bloomberg cited dealers saying this deal could serve as a trigger for companies at the junk bond level to consider issuing corporate bonds. Although no other specific transactions have occurred, it is possible that trades may happen after evaluations by relevant parties at each company.

Food companies under Yum Brands closed most of their stores by mid-April due to the impact of COVID-19. About 1,000 Pizza Hut stores in the U.S. and 900 KFC stores in the U.K., among a total of 7,000 stores worldwide, were closed or faced delivery restrictions. Yum Brands operates more than 50,000 stores globally. Yum Brands stated that the funds raised through the bond issuance will be used for corporate operations.

Meanwhile, credit rating agency Moody's downgraded Yum Brands' credit rating outlook from 'stable' to 'negative' on the same day. Moody's explained the downgrade reason as reflecting that "the company is facing significant uncertainty and that the current increase in debt levels is causing a continuous weakening of the credit rating."

This content was produced with the assistance of AI translation services.