AB InBev brews success with giant US$46bn bond

(Adds stock sell-off, investor reax)

By Mike Gambale

NEW YORK, Jan 13 (IFR) - Brewing giant AB InBev launched a US$46bn bond on Wednesday, the second-largest bond in history, after amassing US$110bn in investor orders to help fund its acquisition of rival SABMiller (Xetra: BRW1.DE - news) .

As expected, the drinks giant behind Budweiser and Stella Artois was inundated with demand for 2016's first true breakout deal in the US investment-grade bond market.

The seven-tranche bond was just shy of the record US$49bn bond that Verizon (NYSE: VZ - news) sold in 2013, but bigger than the US$40bn market players had anticipated as demand for the deal swelled.

If the final tally on the book does not change much, however, AB InBev will still be able to claim the largest order book on record.

"The number won't be drastically different," said one banker on the deal.

Bank of America Merrill Lynch, Barclays (LSE: BARC.L - news) and Deutsche Bank (Other OTC: DBAGF - news) are the global coordinators on the bond offering. Mitsubishi UFJ, Santander and Societe Generale (Swiss: 519928.SW - news) are joint bookrunners.

The banks will be pleased with the success of the trade, which many in the market believe will help improve the tone in what has been a shaky start to the new year.

Worries about China, commodities and other headline risks have left the primary market in uncertain mood, even on the heels of a record US$1.269trn of issuance in 2015.

Stocks were getting hammered as the bond was launched, with the Dow Jones Industrial Average down more than 300 points.

"There is stress in credit markets, but there is cash for the right deal and InBev is a good example of that," Neil Sutherland, a portfolio manager at Schroders (LSE: SDR.L - news) , told IFR.

"It (Other OTC: ITGL - news) tightened price talk quite aggressively but still got demand in excess of US$100bn, even when equities were off and risk assets were struggling."

One syndicate banker said the deal will help establish a clearing level for large deals, and also help pave the way for more M&A deals to come.

AB InBev, the world's largest brewer, was formed in 2008 when Anheuser-Busch merged with InBev - and now it will add SABMiller, maker of Foster's and Pilsner Urquell, to its stable.

The company initially backed the more than US$100bn bid acquisition with a record US$75bn syndicated loan, TRLPC reported in November.

The new bond, to take out some of that debt, has fixed-rate tranches of three, five, seven, 10, 20 and 30 years, as well as a floating-rate five-year issue. A three-year FRN was dropped.

The biggest tranches were the 10 and 30-year, each sized at US$11bn, which launched at T+160p and T+205bp respectively - 20bp inside levels where the deal was first marketed.

The deal also included a US$4bn three-year at T+85bp; a US$7.5bn five-year at T+120bp; a US$6bn seven-year at T+150bp; a US$6bn 20-year at T+190bp; and a US$500m five-year FRN at 3mL+126bp.

The whopping demand allowed leads to ratchet in pricing from initial thoughts to launch by 15bp-35bp across the tranches, which many observers saw as a solid result.

That still left AB InBev paying 10bp-20bp on the longer-dated bonds.

That is a considerable premium for such a well-regarded corporate credit, but still cheap for the borrower with around 5% interest rate payments on the 30-years.

"The company has achieved better pricing, but they've still left enough money on the table for investors to make it attractive enough," said Roger Webb, an investment director at Aberdeen Asset Management (Other OTC: ABDNF - news) .

"We know we're buying at the high point in leverage and the company will be focused on bringing that down," Webb told IFR.

"That's good from a credit point of view, especially when they are financing at such attractive levels."

Smaller bonds in euros and sterling, and possibly even Canadian or Aussie dollars, could still follow.

"Given their asset mix and revenue streams, it would make sense for the company to have mixed liabilities," Webb said. (Reporting by Mike Gambale, Laura Benitez and Paul Kilby; Writing by Marc Carnegie; Editing by Natalie Harrison)