Coming into the year, Anheuser-Busch InBev was one of several heavily indebted US corporates facing a downgrade to junk, but a six-part bond and liability management exercise managed to flip that script not just for the world’s largest beer maker but for the market as a whole.
AB InBev’s was not the largest US high-grade bond of the year or even the most tightly priced, but it set a path for big Triple B names whose high leverage was weighing on market sentiment.
The brewer caught the market by surprise with a US$15.5bn bond two weeks into January, less than a year after raising US$10bn and three years on from its US$46bn bond to fund its acquisition of SAB Miller - the second-largest bond ever.
This time was different as the brewer paired the bond with a US$16.3bn tender designed to attend to looming short-term maturities resulting from its acquisition spree.
Coming off a volatile 2018, the company took advantage of renewed risk-on sentiment in January to print the first jumbo corporate deal of the year – a six-part issue comprising tenors from six to 40 years.
“When I think of big deals that defined the year, InBev started it off,” said Marc Fratepietro, co-head of global debt capital markets at Deutsche Bank. “It was a tone setter.”
Messaging, however, was tricky at a time just before markets took off in earnest following the Federal Reserve’s pivot on rates.
The credit story was also tough. AB InBev had been downgraded and was considering selling its Asian business through an IPO. A liability management exercise could have been interpreted as a delay or even an abandonment of promises to deleverage.
“We had just come off a challenging period and there was some hesitation in terms of coming into the market, and it was really that second week of January when things started to pick up and move rapidly tighter in spreads,” said Peter Aherne, head of North America capital markets at Citigroup.
Even so, bookrunners Bank of America, Barclays, Citigroup, Deutsche Bank and JP Morgan had to muster their powers of persuasion to convince the buyside that this was part of a broader deleveraging plan, which ultimately proved true as the brewer cut dividends and sold assets.
That narrative got investors on board with order books peaking at US$41bn, allowing the company to upsize the tender to US$16.5bn from US$11bn and reduce annual bond maturities to under US$3bn for each of the next five years.
AB InBev provided a blueprint for others later in the year, including Kraft Heinz, Verizon, AT&T and CVS, according to Barbara Mariniello, head of Americas debt capital markets at Barclays.
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