Feb 13 (IFR) - Blue-chip credit Coca-Cola FEMSA (KOF) has
always had ambitious pricing goals, but bankers are wondering
whether it can really achieve its cheap target levels on a new
The Latin American company, the largest Coca-Cola
bottler in the world by sales, has been heard discussing a level
of 80 basis points (bp) over Treasuries for a new 10-year issue.
But while rates are super low at the moment, allowing
companies to issue debt incredibly cheaply, pricing a bond less
than 100bp over Treasuries might be too much to expect.
Bankers say the price will ultimately be largely determined
by how the company's existing bonds are faring in the secondary
Its outstanding 2020 bonds were priced in early 2010 at 60bp
tighter than the Mexican government's bonds - at the time one of
the smallest coupons ever seen out of Latin America.
The 4.625% printed at 99.491 to yield 4.689%, or 105bp over
But that bond is now trading wide or flat to peers with
lower credit ratings than KOF's A2/A-/A, and has sold off since
initial discussions began in December about a new debt issue.
The spreads have climbed from a recent low of 119bp on
October 18 to around 150bp this week on a G-spread basis,
according to one banker.
Because of this, many in the market say the goal of 80bp for
the new issue may be just a little too bold - although 100bp
seems well within reason.
"At the end of the day, investors will price to the
secondary (market)," one banker said. "Unless the 2020s rally to
65bp over, a new 10-year at 80bp will be ambitious."
TIGHTENING IN A BOTTLE
KOF is roadshowing its new deal in the United States this
week, according to one account, winding up on Thursday in
Atlanta and Milwaukee.
The company is believed to be considering a broad range of
tenors from five to 30 years for the new deal, which is being
led by Citigroup, Goldman Sachs and JP Morgan.
Pricing the deal inside of comparable US bonds, rather than
any in Mexico, is thought to be the goal this time around.
KOF last year bought a majority stake in Coca-Cola Bottling
Philippines for about US$689m, making it a truly global player
rather than simply a Mexican or Latin American name.
By explaining its story in roadshows to investors, some say,
KOF will be able to tighten the pricing on the new issue
"They could reposition this curve," said a debt capital
markets banker. "I could see them coming at 100bp."
At the current G-spread of around 150bp, the KOF 2020s
compare to Dr. Pepper's 2022s (Baa1/BBB), which are being quoted
at around 92bp; Heineken's 2023s (Baa1), quoted at 110bp; and
InBev's 2023s at 84bp over Treasuries.
Meanwhile KOF's parent Coca-Cola has 2021s trading
at a G-spread of 66bp.
FLAVOR OF SUCCESS
In its favor for reaching the ambitious pricing target, KOF
has its underlying credit strength, the illiquidity of the
existing bonds and the relatively high price of the 2020s.
All of these factors could be leveraged to encourage
investors to participate, if KOF indeed does decide to raise the
full US$1bn-US$1.25bn it is heard seeking and establish a
But at approximately 111 dollars, the price on the KOF 2020s
is not that high - and being able to come 70bp inside the
current 150bp G-spread seems unlikely.
With the 10-year US Treasuries at around 1.975% on Tuesday,
an 80bp finish would equate to a yield of 2.775% - an incredibly
cheap price for any new KOF debt.
Some bankers say that the secondary levels on the existing
2020s don't reflect KOF's underlying credit quality. But, as one
put it, the secondary pricing is real - and there for a reason.
"You don't get 70bp of arbitrage in single A names," the
banker said. "The Street would keep putting in higher and higher
prices until they got paper."
Timing for any deal remains unclear. Bankers are wondering
whether KOF will wait for the release of its fourth-quarter
earnings before moving forward with what is expected to be an
SEC-registered bond. There has also been talk that the borrower
might want to meet with Asian investors, given its recent
acquisition in the Philippines.
For other related fixed-income quotations, stories and
guides to Reuters pages, please double click on the symbol:
U.S. corporate bond price quotations...
U.S. credit default swap column........
U.S. credit default swap news..........
European corporate bond market report..
European corporate bond market report..
Credit default swap guide..............
Fixed income guide......
U.S. swap spreads report...............
U.S. Treasury market report............
U.S. Treasury outlook...
U.S. municipal bond market report......