Market Extra: Hormel’s $1 billion debt deal sees demand amid COVID-19 battle at meat processing plants

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Hormel Foods Corp.’s $1 billion corporate bond deal flew off the shelves on Thursday, even as the pork giant and other meat processors work to tamp down COVID-19 infections at their processing plants.

Austin, Minn.-based Hormel HRL, +0.62% was able to trim its borrowing costs on the single tranche of 10-year bonds, rated A1 by Moody’s and A by S&P, reflecting robust interest from investors for the company’s debt deal.

The bonds cleared at a 1.83% yield, after pricing was cut by 33 basis points to 102 basis points above risk-free Treasurys during the course of the day, according to a person with direct knowledge of the dealings.

The debt raise comes as U.S. meat-processing facilities continue to grapple with coronavirus infections and uncertainty as states slowly begin to reopen for business.

Read: California reports a rise in infections amid protests and reopening

Over the past several days, pork-processing facilities owned by Hormel and Quality Pork Processors in Austin have been battling outbreaks of new COVID-19, as local cases climb, according to several news reports.

President Donald Trump, responding to fears of meat shortages during the pandemic, signed an executive order on April 28 that classified meat and poultry processors as critical infrastructure, a move designed to help plants stay open for business during the national emergency.

The order mainly calls on meat processors to affirm they will operate in accordance with guidance put out by the Centers for Disease Control and Prevention and other governmental agencies, to help protect workers so that plants can continue operating.

Hormel’s public bond filing said the company warned of “highly pathogenic human disease outbreaks” that could materially impact U.S. hogs and pork production in October 2019, some five months before the novel coronavirus became a U.S. public health crisis.

The company did not immediately respond to a request for comment about the latest status of its Austin plant, or about the bond deal.

But company executives on May 21 spelled out enhanced safety measures put in place to better protect workers from COVID-19, during the food producer’s second-quarter earnings call.

Earnings for the quarter fell slightly below expectations, even as its Spam and Skippy peanut-butter products outshined its pork and turkey products.

See: Hormel’s earnings show consumers should expect to pay more for bacon and Spam

During the earnings call, Hormel executives said all of their plants were open currently, even through they are battling new infections, strained staffing levels and production constraints.

“The shorter-term issue is, as you do have more and more positive cases .. you get some absenteeism,” said James Snee, Hormel’s chairman, president and chief executive officer, on the earnings call. “That’s the short-term issue that really is impacting the capacity in some of these plants.”

Low rates have led to a record $1 trillion boom in borrowing by highly rated U.S. companies in the past five months, despite skyrocketing unemployment and earnings that look mostly dismal.

Still, optimism around the U.S. potentially staging a quicker recovery from COVID-19 than initially expected helped push the 10-year Treasury note yield TMUBMUSD10Y, 0.814% 5.7 basis points higher on Thursday, edging it above 0.80% for the first time since late March. The Dow Jones Industrial DJIA, +0.04% eked out its longest win streak since late April.

Hormel said it plans to use the bonds for general corporate purposes, in a public filing.

Read: Soaring demand for Campbell Soup products drove blowout earnings but also created inventory problems

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