--Four-part debt sale is largest ever for company
--Second-biggest overall bond offering this year
--About $28 billion of orders, says one syndicate desk
(Updates with final pricing in fifth paragraph; adds background on Anheuser's debt in last two paragraphs.)
By Katy Burne
A unit of Anheuser-Busch InBev NV (BUD, ABI.BT) marketed $7.5 billion of bonds Wednesday--the Budweiser brewer's largest bond sale and the second-biggest debt offering of any company this year--to prefund its acquisition of Grupo Modelo SAB de CV (GPMCY, GMODELO.MX).
The issue comes as a rash of high-quality companies have raced to sell debt, with borrowing rates among the cheapest on record, getting out ahead of earnings blackout periods and in case market conditions deteriorate. On Tuesday, yields on a Barclays index tracking investment-grade company debt reached an all-time low of 3.13%.
The beer makers announced their plans to combine on June 29. Under the $20.1 billion deal, Anheuser-Busch will buy the remaining stake in the maker of Corona Extra that it doesn't already own.
Anheuser-Busch InBev Worldwide's debt financing comes in four tranches and comprises $1.5 billion of three-year notes, $2 billion of five-year notes, $3 billion of 10-year debt and $1 billion of 30-year bonds.
The three-year notes priced with a risk premium of 0.50 percentage point over comparable Treasurys; the five-year notes at a spread of 0.80 percentage point to Treasurys; the 10-year notes at 1.05 percentage points over; and the 30-year bonds at a spread of 1.20 percentage points over Treasurys. That was inside preliminary guidance, indicating strong demand.
"The new-issue market has heated up quite a bit this week and there's been very intense demand for the quality issues," said Barry Julien, portfolio manager at First Western Capital Management, which has $1.4 billion in fixed-income assets under management.
Julien said he has owned Anheuser bonds in the past and has an order in to participate in today's deal, but that investors would likely be "cut back a lot on their allocations."
The sale had seen around $28 billion of orders from investors, according to one syndicate desk leading the offering. Bank of America Merrill Lynch, Barclays, Deutsche Bank Securities and J.P. Morgan Chase & Co. are jointly running the deal.
The largest sale of investment-grade bonds in the U.S. this year came from United Technologies Corp. (UTX), which sold $9.8 billion of debt on May 24 to fund its acquisition of Goodrich Corp.
Previously, Anheuser-Busch InBev Worldwide's largest debt sale had been a $5.5 billion, four-part offering in October 2009, said Dealogic, followed by a $1.05 billion, two-part deal in July 7 last year.
The 2011 deal featured three-year fixed and floating-rate debt that priced with a nominal interest rate, or coupon, of 1.5% and 0.36 percentage point over the London interbank offered rate, respectively.
The new senior unsecured bonds will be guaranteed by the issuer's parent company, Anheuser-Busch InBev SA/NV, Brandbrew SA, Cobrew NV/SA and Anheuser-Busch Companies, LLC.
The deal with Grupo Modelo is also being financed with some short-maturity loans.
In midafternoon secondary trading Wednesday, existing Anheuser-Busch InBev Worldwide bonds advanced, according to MarketAxess data. A batch of notes due in 2016 were 0.01 percentage point higher on the day to sit at 1.68 percentage point over Treasurys and debt due in 2020 and 2039 were up 0.04 and 0.05 point, respectively.
Anheuser-Busch had been working hard to take down debt in recent years, according to a Wednesday report by ratings company Egan Jones. Its operating income rose to $6.8 billion in the second half of 2011 from $6 billion in the year-earlier period, while its interest expenses fell to $1.27 billion from $1.53 billion. But the Modelo deal increases its debt by $14 billion, almost half of its net debt of $34.7 billion.
The company is rated A3 by Moody's Investors Service, A by Fitch Ratings and Standard & Poor's and BBB by Egan Jones.
Write to Katy Burne at [email protected]