(Bloomberg) -- Home Depot Inc. told investors it expects to take on $12.5 billion of debt to help fund its planned purchase of building-products distributor SRS Distribution Inc. 

The world’s largest hardware store chain plans to fund the acquisition with cash on hand, as well as new commercial paper and unsecured notes, Chief Financial Officer Richard McPhail said during a conference call Thursday. The deal is valued at about $18.25 billion.

 

The company estimates the commercial paper and unsecured notes portion will amount to $12.5 billion, a preliminary projection that is subject to change, according to an investor presentation on Thursday. McPhail said he expects the commercial paper to be fully backstopped by revolving credit facilities.

“Our capital allocation principles remain unchanged, with a focus on investing to grow the business and paying the dividend,” he said during the call.

A representative for Home Depot declined to comment further.

The timing of the closing of the acquisition is subject to regulatory approvals and other closing conditions and will determine the specific financing terms, added the CFO. The acquisition is expected to be completed in early 2025.

The retailer expects to have an adjusted debt to Ebitda ratio of approximately 2.5 times at the close of the transaction, with a focus to trim leverage back to its target of approximately 2.0 times by paying down debt and through Ebitda growth in the next two years.

“We do not plan to restart our share repurchases until we have reached our target of approximately 2 times adjusted debt-to-Ebitda and we intend to maintain our current investment-grade ratings,” said McPhail.

Big acquisition-related bond deals have helped fuel record issuance this year and there are more such deals in the pipeline. Investors have been receptive to the deals, with bond sales from Bristol Myers Squibb, Cisco Systems Inc. and AbbVie Inc. several times oversubscribed.

“We have seen some discipline from borrowers, though, as there has been a balance of equity and debt used for M&A to date, which is good to see as creditors,” said Matt Brill, head of North America investment-grade credit at the Atlanta-based Invesco Ltd.

Read more: Bond Markets Are Flooded With Deals to Fund M&A: Credit Weekly

Blue-chip firms have capitalized on the strong investor demand — including from overseas investors — to borrow $529.5 billion this year through Wednesday, the fastest-ever pace for first-quarter sales, according to Bloomberg News analysis. The demand has also helped keep risk premiums tight despite the debt deluge.

“Investors want yield, and with investment-grade yields still close to 20-year highs, the inflows continue, allowing the market to easily absorb this supply,” added Brill.

The SRS deal would further Home Depot’s focus on professional contractors, a more lucrative target than do-it-yourself consumers. Home Depot and rival Lowe’s Cos. have been battling to lock up more of the professional market.

Read more: Home Depot to Buy Pro Supplier SRS for About $18.25 Billion

--With assistance from Stefani Reynolds.

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