InBev's $45 billion loan signals trouble for M&A finance

LONDON (Reuters) - Senior banks will sign up for Belgian brewer InBev's INTB.BR $45 billion loan to finance its acquisition of rival Anheuser-Busch (BUD.N) next week, but bank capital constraints have created a shortfall that could affect the syndication of up to $200 billion of recent M&A loans.

InBev's arranging banks were left slightly over their target sell down level after the first round of syndication as banks continue to suffer from high funding costs and thin dollar liquidity, loan market sources said.

The outcome of the InBev loan, which carried one of the highest interest margins even seen on an investment-grade loan, will push loan pricing higher and is a sign of potential trouble ahead for the syndication of jumbo M&A loans, particularly towards the end of the year.

The loan market is currently digesting $83 billion of loans including the InBev loan, BG Group's (BG.L) loan backing its acquisition of Origin Energy (ORG.AX) and Schaeffler's loan backing its hostile acquisition of Continental AG (CONG.DE).

"The balance sheet constraint issue is ruling over all others. Big syndications might be difficult from here on for the rest of the year," an investment-grade specialist said.

According to RLPC data a loan of up to five billion pounds is on the way backing miner Xstrata's (XTA.L) bid for Lonmin (LMI.L), Gas Natural (GAS.MC) has mandated a 17 billion euro loan backing its bid for Union Fenosa UNF.MC, a loan of around $20 billion is brewing backing Roche's (ROG.VX) bid for Genentech DNA.N, and further syndication of BHP Billiton's (BLT.L) $55 billion loan is still hanging over the market.

Loan pricing has already nearly trebled to an average of 125 b.p. for BBB-rated companies and 62.5 b.p. for A-rated companies since the credit crunch hit last year, RLPC data showed.

"There is an inexorable rise in pricing as more and more banks are affected by the credit crunch. There is less liquidity around and banks are being far more selective in the deals that they will support. It just means that pricing is going up," a senior syndicator said.

LARGE COMMITMENTS DIFFICULT

InBev asked banks to commit $1.75 billion each in return for high fees of 100 basis points (b.p.) or $17.5 billion and rich interest margins of 175 b.p., stepping down to 100 b.p.

Some banks found $1.75 billion challenging and made smaller commitments that were difficult for the arranging banks, which need full top-level commitments to keep the sell down on track. the August bank holiday at the end of the month, sources said.

InBev's arranging banks - Bank of Tokyo-Mitsubishi UFJ, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING, JP Morgan, Mizuho, Royal Bank of Scotland and Santander - now have slightly more to raise in general syndication to reduce their own exposure.

"We are reasonably happy with the way it came out," a banker close to InBev's loan said.

The lead banks have underwritten $4.5 to $5 billion each, and want to hold $3.2 billion after syndication, sources said. Being left overexposed will entail expensive secondary market sales.

InBev's loan will be launched to a general syndication after the August bank holiday at the end of the month, sources said.

RAPID REFINANCING REQUIRED

Syndication of the jumbo loans is relying on swift bond and equity market refinancings to reduce banks' commitments and allow them to recycle capital quickly.

This will generate a substantial amount of new bond and equity issues within a year and companies will have to issue within that period despite volatile markets.

"There will be a wall of bonds coming quite soon," a senior syndicator said.

InBev is planning to cut its loan by $19 billion within a year. $7 billion is a one-year bridge loan to asset disposals and $12 billion is a one-year bridge loan to capital markets issues. InBev has also secured a $9.8 billion bridge loan to an equity issue.

BG Group's $14 billion loan also has a one-year maturity with a one-year extension option and plans to refinance quickly.

"There will be pressure on the bond market no question, the lead banks will want to get to market as soon as they can and it will be expensive for the companies," the syndicator added.

(Reporting by Tessa Walsh; Editing by Richard Hubbard)