Anheuser-Busch InBev Uncaps $46B Bond Deal; 2nd-Largest Offering Ever

Anheuser-Busch InBev Finance (ABIBB; ENXTBR:ABI) has launched a $46 billion, seven-part deal in what is on track to become the second largest placement of corporate bonds on record behind the $49 billion of M&A-driven debt placed byVerizon Communications in September 2013. The offering, which backs the blockbuster acquisition of key rival SABMiller, is also far above the existing second-highest offering amount, or $21 billion in an M&A-driven deal from Actavis Funding last March.

Spreads for today's offering were set 10–30 bps through early whispers—but still more than 30 bps north of recent longer-dated secondary marks—after the company dropped an initially proposed three-year FRN tranche. Order books for today's deal were reported north of $100 billion well ahead of launch, as the company seeks to address $75 billion of committed bank financing for the SABMiller buy.

The offering was set firm to guidance as: $4 billion of three-year notes at T+85 (guidance T+90 area and whispers T+120 area; deal on track for reoffer yield near 2%); $7.5 billion of five-year notes at T+120 (guidance T+125 area and early whispers T+145 area; on track for reoffer near 2.73%); $500 million of five-year FRNs at L+126; $6 billion of seven-year notes at T+150 (guidance T+155 area from early whispers in the T+165 area; deal on track for reoffer near 3.37%); $11 billion of 10-year notes at T+160 (guidance T+165 area from early whispers in the T+180 area; on track for reoffer yield near 3.7%); $6 billion of 20-year bonds at T+190 (guidance T+195 area from early whispers in the T+210 area; on track for reoffer yield near 4.78%); and $11 billion of 30-year bonds at T+205 (guidance T+210 area from early whispers in the T+225 area; on track for reoffer yield near 4.93%). All issues carry Feb. 1 final maturity dates.

In terms of individual tranche sizes, the $11 billion 10- and 30-year tranches—which reportedly drew especially high demand metrics—are only rivaled by the record-setting $15 billion 6.55% 2043 issue and $11 billion 5.15% 2023 issue placed by Verizon in 2013.  

Existing bonds backing Anheuser-Bush InBev leaked wider ahead of today’s expected deal announcement, while holding below heights reached in September and October as the company courted key rival SABMiller. Still, guidance levels reveal substantial new-issue concessions to clear the sheer size of the leveraging M&A-driven transaction, helping facilitate the large order book.

The 4.625% bonds due Feb. 1, 2044, inked by debt-issuing subsidiary Anheuser-Busch InBev Finance (ABIBB) in January 2014 at T+90, traded yesterday and this morning at substantially wider date-adjusted levels in T+180 area and later in the low-to-mid T+170s, while the 3.7% notes due 2024, printed as part of the same offering at T+85, traded yesterday and today on either side of T+130, trade data show. Both issues changed hands roughly 15–20 bps wider week to week at the heights.

Notably, that 2014 offering was part of a $5.25 billion debt placement backing the company's $5.8 billion acquisition of Oriental Brewery, a deal announced just six months after the hard-won acquisition of Mexican brewer Grupo Modelo in 2013.

With the exception of the 2036 and 2046 bonds, today’s notes are subject to a special mandatory redemption at 101, in the event the merger is not consummated by Nov. 11, 2016 or the closing date is not extended at the issuer’s option to May 11, 2017.

Unconditional guarantees are supplied by parent Anheuser-Busch InBev SA/NV, and its subsidiaries Anheuser-Busch InBev Worldwide Inc., Brandbev S.à r.l., Brandbrew S.A., Cobrew NV, and Anheuser-Busch Companies, LLC.

Joint bookrunners and global coordinators are BAML, Barclays, and Deutsche Bank, along with joint bookrunners MUFG, Santander, and Societe Generale.

The issues are subject to make-whole call provisions, and there are par calls prior to maturity on the issues dated 2021 (one month), 2023 (two months), 2026 (three months), 2036 (six months), and 2046 (six months).

Anheuser-Busch InBev on Nov. 11 announced a record-breaking $75 billion of committed senior financing for the acquisition across a $10 billion, one-year disposals bridge facility, a $15 billion, two-year bridge-to-cash facility, a $15 billion, one-year bridge-to-cash facility with a one-year extension option, a $25 billion, three-year facility A, and a $10 billion, five-year facility B. The $10 billion, one-year disposals bridge facility backs the disposal to Molson Coors of SAB’s 38% stake of a MillerCoors JV in the U.S.

Shares of SABMiller will be acquired by a Brussels-based Newco, which will subsequently acquire ABIBB to create a new holding company listed on Euronext Brussels and, in a planned secondary listing, the Johannesburg Stock Exchange. The acquisition is expected to close during the second half of 2016.

For reference, the largest-ever offering of long-term corporate bonds was by Verizon Communications in September 2013, when it placed $49 billion of notes across eight tranches to facilitate the acquisition, from Vodafone, of the remaining stake it did not own in Verizon Wireless. The $61 billion of bridge financing for that deal included a $12 billion tranche intended for refinancing with an A term loan and a $49 billion tranche to be refinanced with bonds.

ABIBB has stated that its “optimal” long-term capital structure target remains at a net-debt-to-EBITDA ratio of roughly 2x.

The deal is now guided to an A–/A3/A profile, after S&P lowered its rating by one notch on Nov. 13 and Moody's today assigned an A3 rating in anticipation of resolving the ratings review on its current A2 senior debt rating on ABIBB with a one-notch downgrade.

S&P's stable outlook post downgrade reflected S&P’s view that “the combined group's strong cash flow generation and solid track record of debt reduction will result in a Standard & Poor's-adjusted debt to EBITDA ratio of 3–4x over the medium term, after being about 5x in 2016.”

Moody's does not expect leverage to ebb to 3x until 2020, in part due to a "relatively high" dividend payout, but said today that ABIBB should be able to meet or beat its synergy and cost savings targets and that "already high profitability (EBIT margins in the low-mid 30% range) will be sustained or even improved."

"Importantly, ABI's senior management has articulated publicly that it will continue to target a net debt to EBITDA leverage (by the company's definition) of 2 times over the longer term. These positives help to support a relatively high investment grade rating despite leverage metrics that will be in speculative grade territory for several years," the agency stated today. — John Atkins

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