Sara Lee plans $800 million debt sale to repay notes

Sara Lee Corp., the maker of Ball Park hot dogs and Hillshire Farm meat products, plans to sell $800 million of 5- and 10-year debt as soon as today as it seeks to repay notes maturing next year.

The 5-year notes may yield about 140 basis points more than similar-maturity Treasuries, and the 10-year debt may pay a spread of about 160 basis points, according to a person familiar with the transaction. Proceeds will be used with cash on hand and commercial paper issuance to help fund a tender offer for notes due in 2011, the company said today in a prospectus that didn't specify the size, timing or maturity of the new debt.

Sara Lee is tapping the U.S. corporate bond market for the first time since 2003, when it issued $1 billion of notes, according to data compiled by Bloomberg. The Downers Grove-based company gave a 2011 earnings forecast on Aug. 12 that trailed some analysts' estimates. Sara Lee is vying with other foodmakers for sales as consumers maintain tightened budgets, with the U.S. slump abating less quickly than economists estimated.

Confidence among consumers, whose spending accounts for about 70 percent of the U.S. economy, rose less than forecast in August from an eight-month low.

Sara Lee's fourth-quarter earnings missed projections as commodity costs for ingredients like wheat, meat and coffee increased in the North American retail business, which accounts for more than one-fourth of sales. The company's commodity costs will rise 15 percent this fiscal year ending next June, after a 1 percent decline in fiscal 2010, Mark Garvey, interim chief financial officer, said this month.

Price CompetitionIn response, Sara Lee will raise prices in "a majority of our businesses," C.J. Fraleigh, head of the North American retail and foodservice operations, said in a telephone interview earlier this month.Price competition on bread has hurt Sara Lee's North American fresh bakery unit, and Fraleigh said he expects first- quarter operating income to decline as the company removes some bread items from its lineup. The company hired Bank of America Corp. to advise it on options for its North American bread unit, people familiar with the matter said in July.Mike Cummins, a Sara Lee spokesman, didn't return a call seeking comment.Sara Lee said earlier this month that Brenda Barnes is resigning as chairman and chief executive officer, focusing on her health after taking leave in May to recover from a stroke.Marcel Smits will stay on as interim CEO and James S. Crown will remain chairman during the search for a successor. Smits and Fraleigh are both contenders to replace Barnes, according to D.A. Davidson Co. analyst Tim Ramey.Credit RatingsToday's notes may be rated Baa1 by Moody's Investors Service and BBB, one grade lower, by Standard Poor's, according to the person, who declined to be identified because terms aren't set.The debt will have a so-called poison put that would allow investors to sell the bonds back to the company at 101 cents on the dollar if there is a change of control and a ratings cut below investment grade, according to today's prospectus.Sara Lee sold $1 billion of 6.25 percent, 10-year debt in September 2001, according to data compiled by Bloomberg. The company offered $110 million of the notes in a reopening the following month, Bloomberg data show. A basis point is 0.01 percentage point.The notes due in 2011 traded at 105.46 cents on the dollar on Aug. 27 to yield 0.955 percent, or a 45.5 basis-point spread, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.